Why in news?
The Reserve Bank of India’s Monetary Policy Committee (MPC) met in August 2025 amid high inflation and slowing growth. Discussions about the committee’s composition and mandate re‑entered public debate as the MPC weighed whether to adjust the repo rate.
Formation and structure
The MPC was created by the Finance Act 2016 (which amended the Reserve Bank of India Act 1934) to make interest‑rate decisions more transparent and accountable. It consists of six members:
- The RBI Governor, who chairs the committee.
- The Deputy Governor in charge of monetary policy.
- One RBI executive nominated by the Central Board.
- Three external experts appointed by the Central Government.
Each member has one vote, and the Governor has a casting vote in case of a tie. Members serve four‑year terms and meet at least four times a year.
Functions
- Setting the policy rate: The MPC decides the repo rate, which influences borrowing costs for banks and consumers.
- Maintaining price stability: The committee’s primary objective is to keep inflation around 4 % (with a tolerance band of 2–6 %) while supporting economic growth.
- Communication: After each meeting the MPC publishes a resolution and minutes explaining its rationale. This transparency helps anchor market expectations.
Significance
An empowered MPC reduces political interference in monetary policy and signals continuity to investors. By making decisions based on data and expert deliberation, the committee supports macroeconomic stability. However, achieving its mandate requires coordination with fiscal policy and addressing supply‑side bottlenecks.