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The Monetary Policy Committee (MPC): Composition and Objectives

Hemant Singh

Monetary Policy Committee (MPC) is a 6 member committee formed after the amendment in the RBI Act, 1934 through the Finance Act, 2016. The basic objective of MPC is to maintain price stability and accelerate the growth rate of the economy.

What is Monetary Policy

Monetary policy refers to the policy of the Reserve Bank of India with regard to the use of monetary instruments under its control to achieve the goals of GDP growth and lower inflation rate. The RBI is authorised to made monetary policy under the Reserve Bank of India Act, 1934.

Hence monetary policy refers to the credit control measures adopted by the Central Bank of a country.

Objectives of the Monetary Policy:

The Chakravarty committee has emphasized that price stability, economic growth, equity, social justice, promoting and nurturing the new monetary and financial institutions have been important objectives of the monetary policy in India.

RBI tries always tries to reduce rate of inflation or keep it within a sustainable limit while on the other hand government of India focus to accelerate the GDP growth of the country.

Structure of Banking Sector in India

What is Monetary Policy Committee?

The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB. The MPC determines the policy interest rate required to achieve the inflation target.

The Reserve Bank’s Monetary Policy Department (MPD) assists the Monetary Policy Committee (MPC) in forming the monetary policy. The Monetary Policy Committee determines the policy rates required to achieve the inflation target.

Composition of Monetary Policy Committee

The 6 member Monetary Policy Committee (MPC) constituted by the Central Government as per the Section 45ZB of the amended RBI Act, 1934. The first meeting of the Monetary Policy Committee (MPC) was held on in Mumbai on October 3, 2016.

The composition of the MPC as on April 2019 is as follows;

1. Governor of the Reserve Bank of India – Chairperson, ex officio; (Shri Shaktikanta Das)

2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy –
BP Kanungo (Member, ex officio) 

3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio; (Dr. Michael Debabrata Patra)

4. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad – Member

5. Professor Pami Dua, Director, Delhi School of Economics – Member

6. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member

Except ex-officio members all members will hold the office for a period of 4 years or until further orders, whichever is earlier.

Instruments of Monetary Policy;

The instruments of monetary policy are of two types:

1. Quantitative Instruments: General or indirect (Cash Reserve Ratio, Statutory Liquidity Ratio, Open Market Operations, Bank Rate, Repo Rate, Reverse Repo Rate, Marginal standing facility and Liquidity Adjustment Facility (LAF))

2. Qualitative Instruments: Selective or direct (change in the margin money, direct action, moral suasion)

It is worth to mention that all of the above mentioned instruments of the monetary policy are managed as per the requirement of the economy. These instruments maintain the flow of money supply in the economy so that the rate of inflation can be stabilised for ensuring the growth of the Economy.

I hope that after reading this article you must understand that how monetary policy committee is composed and what are its objectives? This topic is very important for competitive exams like UPSC and state public commissions.

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