- The Monetary Policy Committee (MPC) is a committee of the RBI which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
- Under the flexible inflation targeting (FIT) framework, RBI aims to contain Consumer Price Index (CPI) within 4 percent with a band of (+/-) 2 percent.
- The Reserve Bank of India Act, 1934 was amended in 2016 to provide for a statutory and institutionalised framework for the MPC.
- The MPC has six members
- RBI Governor (Chairperson), RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board and remaining 3 members would represent the Government.
- The MPC makes decisions based on majority vote. In case of a tie, the RBI governor will have a second or casting vote.
Why in News?
- The Monetary Policy Committee decided to keep the Repo rate unchanged at 4 per cent in its August policy review meeting.
- The committee left reverse repo rate at 3.35 per cent while maintaining the accommodative stance.
Repo Rate & Reverse Repo Rate
- Repo rate is the rate of interest which is applied by RBI to commercial banks when the latter borrows from RBI. Reverse Repo rate is the rate at which RBI borrows money from commercial banks by lending securities.
- Both the Repo rate and Reverse Repo rate are used to control inflation and money supply in the economy.
Monetary policy stance
- The Central Banks use different terms to indicate its monetary policy stance on deciding policy rates like repo rate.
- “Accommodative” indicates that the central bank is telling the market to expect a rate cut anytime, “neutral” means that RBI could either increase or reduce repo rates as per liquidity conditions, “calibrated tightening” means that a cut in the repo rate is unlikely in the current rate cycle.