Monetary Policy Committee

The constitution of the Monetary Policy Committee or the MPC happens according to the rules set by the Central Government in Section 45ZB of the RBI Act in 1934. According to the research, the very 1st meeting of the Monetary Policy Committee was held in the year 2016 in October. This is a particular committee that is tasked with making the decisions for certain policy rates that are active in the country such as the MSF rates, reverse repo rates, repo rates, and the Liquidity Adjustment Facility along with some other rates as well. In the year 2019 in the month of October, the Monetary Policy Committee was responsible for cutting the rate of repo by about 5.15% in total.

The number of members that are functioning in the Monetary Policy Committee is 6. This committee is one of the most important committees that tend to oversee the finances of the country in the best way. One of the main goals of the Monetary Policy Committee is to ensure that price stability is maintained in the country which leads to the proper growth of the economy of the country in the best way. Here we are going to provide some important details on what is monetary policy committee and much more.

What Exactly is the Monetary Policy?

When it comes to defining the term Monetary Policy, it can be said that it is basically the policy that is made by the Reserve Bank of India in order to use the monetary instruments in the best way. The main point of focus for the Monetary Policy is to ensure the growth of GDP in the country. Also, it aims towards decreasing the rates of inflation in the country as well. According to the Reserve Bank of India Act of the year 1934, the official rights for creating the Monetary Policy have been provided to the Reserve Bank of India. Hence, it can also be said that the monetary policy oversees all the important control measures that are taken by any particular central bank of the country in order to control the credit.

An Introduction to What is Monetary Policy Committee

Also known as the MPD, the Monetary Policy Committee is basically constituted effectively by the Central Government of the country of India under section 45ZB. According to the Monetary Policy Committee, the main function of the committee is to ensure that they are able to properly determine to interest rates of the policy so that the inflation target of the country can be achieved in the best way. The Monetary Policy Department that is a part of the Reserve Bank of India is a major assistance to the Monetary Policy Committee. The department plays a very important role in the creation and formation of the monetary policy that is effective in the country.

The committee always tends to put major emphasis on the importance of economic growth, price stability, social justice, equity, nurturing as well as the promotion of different financial as well as monetary institutions. Hence it can be said that these are some of the major objectives of this particular committee in the best way. In the next section of the article, we are going to provide some major details about the composition and objectives of the monetary policy committee in the best way.

Composition and Objectives of the Monetary Policy Committee

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There are a total of six members that constitute the entire Monetary Policy Committee. According to section 45ZB mentioned in the Reserve Bank of India Act, 1934, the Central Government is responsible for the constitution of the Monetary Policy Committee. As of 2019, the Monetary Policy Committee has the composition as follows.

1. Shri Shaktikanta Das, Governor of the Reserve Bank of India, and also the Chairperson as well as ex officio

2. BP Kanungo, Deputy Governor of the Reserve Bank of India, who is in charge of the Monetary Policy and also aMember as well as ex officio

3. Dr. Michael Debabrata Patra: A particular officer working in the Reserve Bank of India who also happens to have a nomination from the Central Board and also a member plus ex officio

4. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad, and also a member

5. Professor Pami Dua, Director, Delhi School of Economics and also a member

6. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) and also a member

Apart from the ex-officio members, the other members will be in this position in the office for about 4 years.

In the next section of the article, we are going to talk about the objectives of the Monetary Policy Committee. We all are familiar with the fact that the economic growth and development of any particular country is the main goal of the financial institutions as well as the government. India is not so different in this case as well. Some of the major objectives of the committee of Monetary Policy have been the stability of the prices, equity, economic growth of the country, as well as social justice. Not to mention that the RBI also aims to promote and nurture the different financial as well as monetary institutions which will further lead to the rise in the Indian economy in the best way.

It is one of the major goals of the RBI to ensure that the inflation rates in the country are always in a reduced state or at least within a sustainable limit. Apart from that, the main objective of the Indian government is to ensure that the entire GDP growth of the country is also attaining a successful result as well. This is where the Monetary Policy Committee comes in assistance for the cause. By determining efficient and effective policy interest rates, the MPC aims to increase economic growth and decrease the rates of inflation in the country without any difficulty.

So, the composition and objectives of the monetary policy committee tend to be of extreme importance as it helps in shaping the economy of the country in a very influential manner.

Details About Instruments of Monetary Policy

Some of the details about the instruments of monetary policy are provided below. There are two different types of instruments that we know about.

• Quantitative Instruments: Some of the main examples of Quantitative Instruments include the Cash Reserve Ratio, Indirect or General Instruments such as Open Market Operations, Statutory Liquidity Ratio, Repo rate, marginal standing facility, reverse repo rate, bank rate, Liquidity Adjustment Facility and much more.

• Qualitative Instruments: Some of the main examples of qualitative instruments include direct and selective options such as direct actions, margin money changes, moral suasion, and much more.

One very important thing to keep in mind about the instruments that have been mentioned above is that these are the ones that are properly managed according to the needs and requirements of the country’s economy. The main function of such instruments is to ensure that the maintenance of the money flow happening in the country is done at a balanced rate without any difficulty. This way, the inflation rate target for the country can be achieved in a simple manner, thus ensuring the economic growth of the country as well.

Conclusion

So, these are some of the important details that one needs to know about the monetary policy committee. This is one of the most important committees constituted by the Central Government in order to oversee the economic growth of the country in the best way. The objectives as well as the instruments of the Monetary Policy Committee are catered towards the meeting of expectations regarding the economy of the country.