Context: The Reserve Bank of India (RBI) postponed the scheduled bi-monthly meeting of the Monetary Policy Committee (MPC) after the government failed to nominate its three members to the six-member panel on time.
More on news:
- The four-year tenure of the three government-nominated members had expired after the previous policy on August 6.
- RBI had sought an extension of the tenure of external members due to the Covid situation
- It was not accepted by the government as there was no provision for extension in the RBI Act.
Monetary Policy Committee (MPC)
- The MPC is a statutory committee that fixes the key policy interest rates and monetary policy stance of the country as well as the inflation target.
- The MPC comprises three external members and three members from the RBI.
- The RBI Governor heads the MPC.
- If there’s a tie on any proposal, the RBI Governor holds the casting vote.
- Statutory status:
- In 2016, the government had provided statutory backing to the MPC by notifying amendments to the RBI Act, 1934.
- It also provided a statutory basis for the implementation of the flexible inflation targeting framework.
- Prior to October 2016, the RBI Governor used to decide on policy rate.
- Accordingly, the Central Government has notified 4 percent (+/- 2%) Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021.
What is RBI’s Monetary Policy?
- Monetary policy is the macroeconomic policy laid down by the Reserve Bank of India.
- It involves the management of money supply and interest rates.
- The central bank tweaks interest rates to achieve macroeconomic objectives such as liquidity, consumption and inflation.
- Legal framework: The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy, explicitly mandated under the Reserve Bank of India Act, 1934.
The goal(s) of monetary policy:
- The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
Image source: Indian Express