Meaning
Monetary Policy refers to the set of actions that the central banks use to control the demand and supply of money, cost of credit and over all liquidity in an economy.
The primary goal of the monetary policy in a country like India is to ensure price stability and growth in the economy.
Monetary Policy Committee (MPC)
The Monetary Policy Committee is a statutory body who is mandated with the task to fix benchmark policy interest rates and contain inflation within a specified target while keeping economic growth in mind.
The MPC consists of 6 members.
Internal Members
- RBI Governor
- Deputy Governor in charge of Monetary Policy
- One RBI Officer nominated by the Central Board of Directors
External Members
Appointed by the Central Government, these members are selected by a Search-cum-Selection Committee chaired by the Cabinet Secretary. They must possess expertise in economics, banking, finance, or monetary policy. They serve a fixed term of four years and are not eligible for re-appointment
The recommendation to set up a MPC instead of Governor deciding the rates was given by multiple committees namely:
- Y V Reddy Committee 2002
- Tarapore Committee 2006
- Percy Mistry Committee 2007
- Raghuram Rajan Committee 2009
- Urjit Patel Committee 2013
The MPC was established in June 2016 by an amendment to the RBI Act 1934 by the Finance Act 2016.