Context

• The Monetary Policy Committee (MPC) of the Reserve Bank of India on October 9, 2024, decided to keep the policy repo rate unchanged at 6.50% for the 10th time in a row.

Monetary Policy Committee

• The Monetary Policy Committee (MPC) is a committee formed by the Government of India whose main objective is to control inflation while keeping the country's economy stable. This committee determines the country's monetary policy, which also includes changing interest rates.

 Constitution and objectives of MPC

• Formation: The Government of India constituted the Monetary Policy Committee on June 27, 2016 by amending the Reserve Bank of India Act.

Objectives:

• Inflation control: The primary objective of the MPC is to keep inflation within a specified target.
• Economic growth: The MPC formulates monetary policy that promotes economic growth.
• Financial stability: The MPC works to keep the financial system stable.

Members of the MPC

There are a total of six members in the MPC: -

• Three members: Governor of the Reserve Bank of India and two Deputy Governors.
• Three members: Economists nominated by the Government.

Functions of MPC:

• Determination of interest rates: MPC determines the interest rates in the country. Changes in interest rates have a direct impact on the economy.
• Inflation report: MPC releases inflation report from time to time, which gives information about the level of inflation, its causes and future outlook.
• Implementation of monetary policy: The decisions taken by MPC are implemented by the Reserve Bank of India.

Tools/Instruments of Monetary Policy

The Monetary Policy Committee (MPC) uses several tools to control the country's economy and keep inflation under control. Through these tools, the MPC adjusts the money supply and interest rates.

The following are the main instruments of monetary policy: -

• Repo Rate: It is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
• Reverse Repo Rate: It is the rate at which RBI borrows excess funds from commercial banks.
• Open Market Operations: RBI adjusts the amount of money in the market by buying or selling government securities.
• Cash Reserve Ratio (CRR): It is the ratio that commercial banks have to keep a certain portion of their total deposits as cash with the RBI.
• Statutory Liquidity Ratio (SLR): It is the ratio that commercial banks have to keep a certain portion of their total deposits as high-quality liquid assets (such as government securities).

Reserve Bank of India (RBI):

• Established: April 1, 1935 (under the Reserve Bank of India Act, 1934)
• First Governor: Sir Osborn Smith
• Current Governor: Shaktikanta Das
• Headquarters: Mumbai, Maharashtra