The Monetary Policy Committee (MPC) is the body of the RBI, headed by the Governor, responsible for taking the important monetary policy decision about setting the repo rate. Repo rate is ‘the policy instrument’ in monetary policy that helps to realize the set inflation target by the RBI (at present 4%).
The MPC replaces the previous arrangement of Technical Advisory Committee.
The MPC was setup after a Memorandum of Understanding between the government and the RBI about the conduct of the new inflation targeting monetary policy framework in February 2015. First meeting of the MPC was held on October 4, 2016 after the Government made amendment of the RBI Act in June 27, 2016. Committee’s meeting also marked the beginning of full-fledged implementation of the new inflation targeting monetary policy framework.
Structure of the MPC
The Monetary Policy Committee (MPC) is formed under the RBI with six members. Three of the members are from the RBI while the other three members are appointed by the government. Members from the RBI are the Governor who is the chairman of the MPC, a Deputy Governor and one officer of the RBI. The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
The Committee is to meet at least four times a year and make public its decisions following each meeting. The quorum for the meeting of the MPC is four members. There will be no reappointment of the committee.
Under MPC, the governor has a casting vote and doesn’t enjoy veto power (there was veto power for him under TAC). Decisions will be taken on the basis of majority vote.
The main responsibility of the MPC is to administer the inflation targeting monetary policy regime through determining the policy rate or repo rate to contain inflation.
Function of the MPC
The main responsibility of the MPC will be to keep the inflation targets set by the RBI. The MPC decides the changes to be made to the policy rate (repo rate) to contain inflation within the target (based on CPI) level set under India’s inflation targeting regime. Members of the MPC can suggest reasons for their support or opposition for a policy rate change. This will be published in the minutes of the MPC and the minutes should be published after 14 days of MPC meeting. The minutes should contain the reasons for each member proposing or opposing the monetary policy decision taken by the NPC.
In case the inflation target is failed to achieve (2% higher or lower than the set target of 4% for continuous three quarters), the RBI has to give an explanation to the government about the reasons, the remedial actions and the estimated time for realizing the target. Another responsibility for the RBI is to publish a Monetary Policy Report every six months, elaborating inflation forecasts and inflation sources for the next six to eighteen months.
Present Members of the MPC
As mentioned, there are six members in the MPC. Three each from the RBI and the government.
Members from the RBI are (as of July 3rd, 2023):
1. Governor of the Reserve Bank of India (Shaktikanta Das,)—Chairperson, ex officio;
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy (Michael Debrata Patra)—Member, ex officio;
3. Officer of the Reserve Bank of India to be nominated by the Central Board (Rajiv Ranjan)—Member, ex officio;
4. Prof. Ashima Goyal, Professor, Indira Gandhi Institute of Development Research —Member;
5. Prof. Jayanth R. Varma, Professor, Indian Institute of Management, Ahmedabad—Member; and
6. Dr. Shashanka Bhide, Senior Advisor, National Council of Applied Economic Research, Delhi—Member.