UPSC Civil Services Examination
UPSC Notes [GS-II]
Topic: Monetary Policy Committee (MPC)
The Monetary Policy Committee (MPC) is a committee constituted by the Reserve Bank of India and
led by the Governor of RBI. Monetary Policy Committee was formed with the mission of fixing the
benchmark policy interest rate (repo rate) to restrain inflation within the particular target level. The RBI
governor controls the monetary policy decisions with the support and advice of the internal team and the
technical advisory committee. Initially, the main decisions related to interest rates were taken by the
Governor of RBI alone before the establishment of the committee. MPC was constituted under the
Reserve Bank of India Act, 1934 as an initiative to bring more transparency and accountability in fixing
the Monetary Policy of India. MPC conduct meetings at least 4 times in a year and the monetary policy
is published after every meeting with each member explaining his opinions.
Monetary Policy Committee is an important topic for the IAS Exam.
What is Monetary Policy?
Monetary Policy is the process of regulating the supply of money in an economy by the monetary
authority of the country. The Monetary Policy, generally, adjusts the inflation rates or interest rates to
sustain the price stability and to maintain the predictable exchange rates with foreign currencies. The
Reserve Bank of India is the central banking authority of India which controls the monetary policy in
conjunction with the central government’s developmental agenda. The Reserve Bank of India is
authorised to make monetary policy under the Reserve Bank of India Act, 1934.
Monetary policy is either contractionary or expansionary and is often seen separate from the fiscal
policy which deals with taxation, spending by government and borrowing. When the total money supply
is increased rapidly than normal, it is called an expansionary policy while a slower increase or even a
decrease of the same refers to a contractionary policy.
Objectives of Monetary Policy
Monetary Policy was implemented with an initiative to provide reasonable price stability, high
employment and faster economic growth rate. The major four objectives of the Monetary Policy are
mentioned below:
1. To stabilize the business cycle.
2. To provide reasonable price stability.
3. To provide faster economic growth.
4. Exchange Rate Stability.
How was the Monetary Policy Committee formed?
Urijit Patel Committee first proposed the idea for the formation of a five-member Monetary Policy
Committee. Later, the government proposed the setting up of a seven-member committee. MPC is
assisted by the Monetary Policy Department (MPD) of the Reserve Bank in the formulation of the
policy. Monetary Policy Committee came into force on 27th June 2016. The Financial Markets
Operations Department (FMOD) operationalizes the monetary policy, mainly through day-to-day
liquidity management operations.
Structure of Monetary Policy Committee
Monetary Policy Committee (MPC) was constituted as per Section 452 under the RBI Act of 1934 by
the Central Government. The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
The Monetary Policy Committee consists of the following six members which are mentioned in the table
below:
Monetary Policy Committee (MPC)
Chairperson (Governor of the Reserve Bank of India) Shri Shaktikanta Das
In-charge of Monetary Policy (Deputy Governor of the Reserve Bank of India) BP Kanungo
Member 1 (Officer of the Reserve Bank of India nominated by the Central Board ) Dr. Michael Debabrata Patra
Member 2 Dr. Ravindra H. Dholakia
Member 3 Shri Chetan Ghate
Member 4 Pami Dua
Monetary Policy Committee forms an important part of the UPSC Syllabus and is included under the
GS-II section. Candidates preparing for UPSC 2020 should also keep a track on the latest current affairs
topics to know about various economic developments in the country.
