Monetary Policy Committee

                                                    

Monetary policy is an instrument by which central bank controls the supply of money in the economy by its control over the interest rates in order to maintain price stability and achieve high economic growth. In context of India  Reserve Bank of India (RBI) is the highest authority which uses this policy in order to maintain the price stability in the economy.

On June 27, 2016, the Government amended the RBI Act to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee (MPC).

What is Monetary Policy Committee (MPC)?

Monetary Policy Committee (MPC) is a committee constituted by the government in order to bring "value and transparency" to rate setting decisions. The new MPC is a six-member panel featuring  three members from the RBI — the Governor, a Deputy Governor and another official — and three independent members to be selected by the Government.

The MPC will meet four times a year to decide on monetary policy by a majority vote. And if there’s a tie between the ‘yes’ and the 'no' the RBI governor gets the deciding vote.

How it is different from earlier committee?

Earlier technical advisory committee constituted by the RBI, which consists central bank’s top brass including the deputy governor and the governor and external advisers, give their opinion and suggestions on what the RBI should do. But the governor’s word is final on the rates and the advice of the technical advisors is not binding on the RBI

Countries like New Zealand, England, Canada, South Africa, Sweden are the prominent one which are using MPCs for implementing their monetary policy targets. MPCs will play a crucial role in order to tackle the issues of rate setting in india as inflation is the one of the core issue in india today .The MPC will ensure that decisions on interest rates are made through debate by a panel of experts. The many-heads-are-better-than-one approach may also help ensure that the decision isn’t easily influenced by bias or lobbying.

Currently the members of MPCs are three non-RBI members: Pami Dua, director of the Delhi School of Economics; Chetan Ghate, a professor at the Indian Statistical Institute; and Ravindra Dholakia, a professor at the Indian Institute of Management, Ahmedabad. The other three members are Patel, R Gandhi, an RBI deputy governor, and Michael Patra, an executive director at the central bank.

On 4th oct 2016 India’s first monetary policy committee gets to work with an interest rate cut. India's newly appointed RBI governor Urjit Patel’s first monetary policy review, it was also the first time that a newly-appointed committee decided the interest rate trajectory. The recently-formed monetary policy committee (MPC) decided to cut the repo rate—the rate at which the RBI lends to commercial banks—by 25 basis points to 6.25%.

Latest RBI Bank Rates in Indian Banking - 2016

SLR Rate	CRR	MSF	Repo Rate	Reverse Repo Rate	Bank Rate
20.75%	4%	6.75%	6.25%	5.75%	6.75%

Lowering repo rate reduces the overall cost of borrowing in the country and promote the investment which strengthen the economic growth. The MPC may put a stop to the public skirmishes between the Government and the RBI. 

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