Monetary Policy Committee of India

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The Monetary Policy Committee of India is a committee of the Reserve Bank of India that is responsible for fixing the benchmark interest rate in India. The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.

The committee comprises six members - three officials of the Reserve Bank of India and three external members nominated by the Government of India, they need to observe a "silent period" seven days before and after the rate decision for "utmost confidentiality". The Governor of Reserve Bank of India is the chairperson ex officio of the committee. Decisions are taken by majority with the Governor having the casting vote in case of a tie, the current mandate of the committee is to maintain 4% annual inflation until March 31, 2021 with an upper tolerance of 6% and a lower tolerance of 2%.[1]

The committee was created in 2016 to bring transparency and accountability in fixing India's Monetary Policy. Minutes are published after every meeting with each member explaining his/her opinions, the committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.[2]

Establishment and Purpose[edit]

Key decisions pertaining to benchmark interest rates used to be taken by the Governor of Reserve Bank of India alone prior to the establishment of the committee. The Governor of RBI is appointed and can be disqualified by the Government anytime, this led to uncertainty and resulted in friction between the Government and the RBI, especially during the times of low growth and high inflation. Before the constitution of the MPC, a Technical Advisory Committee (TAC) on monetary policy with experts from monetary economics, central banking, financial markets and public finance advised the Reserve Bank on the stance of monetary policy. However, its role was only advisory in nature.

The setting up of a committee to decide on Monetary Policy was first proposed by the Urjit Patel Committee, the Committee suggested a five-member MPC - three members from the RBI and two nominated by the Government. The Government initially proposed a seven-member committee[3] - three from the RBI and four nominated by it. Subsequent negotiations led to the current composition of the committee, with the external members having a four-year term.

The Reserve Bank’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy. Views of key stakeholders in the economy, and analytical work of the Reserve Bank contribute to the process for arriving at the decision on the policy repo rate, the Financial Markets Operations Department (FMOD) operationalises the monetary policy, mainly through day-to-day liquidity management operations. The Financial Markets Committee (FMC) meets daily to review the liquidity conditions so as to ensure that the operating target of monetary policy (weighted average lending rate) is kept close to the policy repo rate.


The composition of the current and first monetary policy committee is as follows:[1]

  1. Governor of the Reserve Bank of India – Chairperson, ex officio - Urjit Patel
  2. Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio - Viral A Acharya
  3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio; - Michael Patra
  4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member;
  5. Professor Pami Dua, Director, Delhi School of Economics – Member;
  6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad - Member

Members referred to at 4 to 6 above, will hold office for a period of four years from the date of appointment while the other three members are official. '

See also[edit]


  1. ^ a b "Monetary Policy Committee constitution under the Reserve Bank of India Act, 1934 notified". Retrieved 2017-06-24. 
  2. ^ ET Bureau (2016-08-06). "India adopts inflation target of 4% for next five years under monetary policy framework". The Economic Times. Retrieved 2017-06-24. 
  3. ^ Reporter, B. S. (2015-07-24). "No veto power for RBI governor in deciding interest rates, says draft code". Business Standard India. Retrieved 2017-06-24.