Monetary Policy Committee

Context:

The three-day Monetary Policy Committee (MPC) meeting has commenced at a time when recent cuts in Goods and Services Tax (GST) and direct taxes are expected to positively impact economic growth.

UPSC Relevance:

Monetary Policy and It’s Tools

UPSC PYQ:

With reference to Indian economy, consider the following: (2015)

1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue

Which of the above is/are component/ components of Monetary Policy?

(a) 1 only
(b) 2, 3 and 4
(c) 1 and 2
(d) 1, 3 and 4

About MPC:

• Under the Reserve Bank of India, Act,1934 (RBI Act,1934) (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.
• In May 2016, the RBI Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.(the Central Government retained the inflation target and the tolerance band for the next 5-year period – April 1, 2021 to March 31, 2026.)
• RBI Act provides for the constitution of a six-member Monetary Policy Committee .

Failure to Maintain Inflation Target: The Central Government has notified the following as the factors that constitute failure to achieve the inflation target: (a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or (b) the average inflation is less than the lower tolerance level for any three consecutive quarters.

Composition:

• RBI Governor – ex-officio chairperson
• 3 other members are be appointed by the Central Government.
• RBI Deputy Governor
• One more member from RBI to be nominated by the Central Board of Directors.

Term:

• Members of MPC hold office for a period of four years and are not eligible for re-appointment.

Quorum: 4 members

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