MPC quorum

Subject: Economy

Context:

Lack of quorum forced the Reserve Bank to postpone the 3-day MPC meeting that was scheduled to start on September 29

Concept:

• Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate magnitudes such as interest rates, money supply and availability of credit with a view to achieving the ultimate objective of economic policy
• The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB of RBI Act determines the policy interest rate required to achieve the inflation target.
• Accordingly, the Central Government in September 2016 constituted the MPC as under Governor of the Reserve Bank of India – Chairperson, ex officio;
• The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
• In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
• The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years.
• Accordingly, the Central Government has notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
• The MPC is required to meet at least four times in a year.
• The composition of the MPC is as follows;
  • Governor of the Reserve Bank of India – Chairperson, ex officio;
  • Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy –
    (Member, ex officio)
  • One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio;
  • Except ex-officio members, three independent members will hold the office for a period of 4 years or until further orders, whichever is earlier.
• The proceedings of MPC are confidential and the quorum for a meeting shall be four Members, at least one of whom shall be the Governor and in his absence, the Deputy Governor who is the Member of the MPC.