Monetary Policy Committee (MPC) Of India: Its Purpose, Structure and Responsibilities

Monetary Policy Committee (MPC) Of India: Its Purpose, Structure and Responsibilities
Mumbai: The Reserve Bank of India (RBI) Governor Shaktikanta Das addresses a press conference in Mumbai, on June 6, 2019. (Photo: IANS)
Monetary Policy Committee (MPC) has been instituted by the Central Government of India under Section 45ZB of the RBI Act that was amended in 1934. MPC had its first meeting for two days on October 3 and October 4, 2016. The MPC is entrusted with the responsibility of deciding the different policy rates including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility. Monetary Policy Committee (MPC) has six members and the main objective of this body is to maintain the price stability and boosting up the growth rate of the country’s economy.

What is RBI Monetary Policy ?

The term ‘Monetary Policy’ is the Reserve Bank of India’s policy pertaining to the deployment of monetary resources under its control for the purpose of achieving GDP growth and lowering the inflation rate. The Reserve Bank of India Act 1934 empowers the RBI to make the monetary policy. We can say that the monetary policy stands for the control measures adopted by the Central Bank of a nation.

What the Monetary Policy intends to achieve?

As per the suggestions made by Chakravarty Committee, aspects such as price stability, economic growth, equity, social justice, and encouraging the growth of new financial enterprises are some crucial roles connected to the monetary policy of India. While the Government of India tries to accelerate the GDP growth rate of India, the RBI keeps trying to bring down the rate of inflation within a sustainable limit. In order to achieve its main objectives, the Monetary Policy Committee determines the ideal policy interest rate that will help achieve the inflation target in front of the country. Monetary Policy Department (MPD) is an important organ of the Reserve Bank of India that assists the Monetary Policy Committee (MPC) in creating the monetary policy.


Monetary Policy Committee Structure

Monetary Policy Committee has 6 members as follows:

SI. No. Designation The office held Who holds the office as on October 2019
Chair Person Governor of the Reserve Bank of India Shri Shaktikanta Das
Member, ex officio Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy BP Kanungo
Member, ex officio An officer of the Reserve Bank of India nominated by the Central Board Dr. Michael Debabrata Patra
Member Professor, Indian Institute of Management, Ahmedabad Dr. Ravindra H. Dholakia
Member Director, Delhi School of Economics Professor Pami Dua
Member Professor, Indian Statistical Institute (ISI) Shri Chetan Ghate

The ex- Officio members of the committee hold the office for a term of four years or until the next order, whichever happens earlier.

Monetary Policy Instruments and how they are managed

Monetary policy instruments are of two types namely qualitative instruments and quantitative instruments. The list of quantitative instruments include Open Market Operations, Bank Rate, Repo Rate, Reverse Repo Rate, Cash Reserve Ratio, Statutory Liquidity Ratio, Marginal standing facility and Liquidity Adjustment Facility (LAF). Qualitative Instruments refer to direct action, change in the margin money and moral suasion.

The instruments listed above are managed and regulated as per the needs of the country’s economy. These instruments are effectively used in order to ensure the money supply in the economy so that the inflation rate is stabilized to realize economic growth.