MONETARY POLICY COMMITTEE (Syllabus: GS Paper 3 – Economy)

Context: The Reserve Bank of India (RBI)’s last monetary policy of the calendar struck a happy rate by increasing its growth forecast to 7% even as it signalled that it is completely in control of the inflation tolerance.

Monetary Policy Committee 

• About: It is body created in 2016, responsible for fixing the benchmark interest rate in India.

oIts meeting are held at least four times a year (specifically, at least once a quarter) and it publishes its decisions after each such meeting.

oThe committee is answerable to the government of India if the inflation exceeds the range prescribed for three consecutive quarters.

• First proposed by: The Urjit Patel Committee.
• Members: The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the government of India.

oThey need to observe a "silent period" seven days before and after the rate decision for "utmost confidentiality".

oThe governor of the Reserve Bank of India is the chairperson ex officio of the committee. 

• Decisions: It is taken by majority with the governor having the casting vote in case of a tie.
• The current mandate: To maintain 4% annual inflation until 31 March 2026 with an upper tolerance of 6% and a lower tolerance of 2%.