Composition and Responsibilities
The Reserve Bank of India (RBI) has reconstituted its Monetary Policy Committee (MPC) as per the provisions of the RBI Act, 1934. This committee plays a crucial role in managing the country's monetary policy.
three from the RBI and three appointed by the Central Government. The Governor of the RBI serves as the chairperson, while the Deputy Governor in charge of Monetary Policy and one other RBI officer nominated by the Central Board are ex-officio members. The remaining three members are external experts appointed by the government for a four-year term.
The selection of external MPC members involves a rigorous process. A panel consisting of the RBI Governor, Cabinet Secretary, and Economic Affairs Secretary evaluates potential candidates and recommends them to the Prime Minister's office for final approval.
The MPC's primary responsibility is to set the benchmark interest rate, known as the repo rate, which influences borrowing costs across the economy. The committee meets every two months to review the economic situation and decide on the appropriate interest rate level.
Currently, the RBI's repo rate stands at 6.5%. While the US Federal Reserve has recently lowered interest rates, analysts believe the RBI is unlikely to follow suit. Instead, the focus remains on controlling inflation and aligning it with the medium-term target of 4%.
The RBI follows a CPI-based inflation targeting framework, aiming to keep inflation within a tolerance range of ±2 percentage points around the 4% target. In recent MPC meetings, the RBI has maintained the repo rate, prioritizing inflation control over immediate economic stimulus.
The MPC plays a vital role in ensuring price stability and fostering sustainable economic growth in India. Its decisions impact various aspects of the economy, including borrowing costs, investment, and inflation. As the RBI continues to navigate the current economic landscape, the MPC's decisions will be closely watched by businesses, consumers, and policymakers alike.