Monetary Policy Committee

  • August 21, 2021
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Monetary Policy Committee

Subject – Economy

Context – MPC’s Varma flags risks of policy stance.

Concept –

  • The Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
  • The Governor of RBI is ex-officio Chairman of the committee.
  • The committee comprises six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
    • The government nominees to the MPC will be selected by a Search-cum-Selection Committee under Cabinet Secretary with RBI Governor and Economic Affairs Secretary and three experts in the field of economics or banking or finance or monetary policy as its members.
    • Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.
  • Decisions are taken by majority with the Governor having the casting vote in case of a tie.
  • The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).
  • An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.

Accommodative Stance:

  • The Monetary Policy Committee (MPC)of the RBI also decided to continue with the accommodative stance as long as necessary to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
  • These decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI)inflation of 4% within a band of +/- 2 %, while supporting growth.
  • Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP).
    • The policy is implemented to allow the money supply to rise in line with national income and the demand for money.
economy Monetary Policy Committee