MONETARY POLICY COMMITTEE

The Monetary Policy Committee (MPC) is a vital entity established under Section 45ZB of the amended RBI Act, 1934. Its primary objective is to determine the policy interest rate required to achieve the inflation target. This committee plays a pivotal role in maintaining price stability while considering the goals of economic growth. Price stability is integral to sustainable growth and is aimed at keeping inflation within a certain range (4% +/- 2%). The Reserve Bank of India (RBI) is responsible for maintaining this inflation target.

The MPC comprises six members, with three being RBI representatives and three nominated by the Government of India. RBI’s Governor chairs the committee, along with the Deputy Governor in charge of monetary policy and one official nominated by the RBI Board. The Government of India proposes the remaining three members, ensuring a balanced composition.

Members of the MPC serve a four-year term and are not eligible for reappointment. External members are appointed based on recommendations from a search cum selection committee, which includes the Cabinet Secretary, RBI Governor, and the Secretary of the Department of Economic Affairs. Nominees must possess expertise in economics, banking, or monetary policy.

It’s important to note that members cannot have conflicts of interest with RBI or be above 70 years of age. The Central government retains the power to remove its nominees under specific conditions.