The central government has reconstituted the Monetary Policy Committee (MPC) ahead of the Reserve Bank of India (RBI) monetary policy review scheduled for October 7-9. This decision comes as part of the RBI’s mandate to maintain consumer price index (CPI) inflation within a target range of 2-6% and aims to stabilize inflation at 4% on a durable basis. The newly appointed external members are Ram Singh from the Delhi School of Economics, Saugata Bhattacharya, and Nagesh Kumar, each serving a four-year term. The MPC also includes RBI officials, with the RBI Governor serving as the chairperson.
The MPC has been pivotal since its first formation on September 29, 2016, following amendments to the RBI Act in 2016, which established the committee’s role in setting the benchmark interest rate. Previously, the committee faced dissenting views from some members regarding monetary policy decisions, notably during the August review when the repo rate was left unchanged at 6.5% for the ninth consecutive time due to high food inflation concerns.
The new members bring diverse expertise:
The reconstitution may influence future policy stances, especially in light of the committee’s previous disagreements. The upcoming review on October 9 is expected to maintain the repo rate at 6.5% amid ongoing inflationary pressures, highlighting the importance of the MPC in shaping India’s economic landscape.
The Reserve Bank of India (RBI) was established under the RBI Act of 1934, which laid the legal foundation for its operations, starting on April 1, 1935. Originally headquartered in Kolkata, the RBI’s central office was permanently moved to Mumbai in 1937. The Act aimed to provide a structured framework for overseeing banking firms in India, transitioning the RBI from a shareholders’ bank to a nationalized entity in 1949.
The RBI Act, 1934, outlines the following primary objectives for the Reserve Bank:
The RBI’s main functions include:
The Act defines scheduled banks as those included in the Second Schedule, requiring a minimum capital of ₹5 lakhs. This category includes scheduled commercial and cooperative banks.
Several key sections of the RBI Act are critical for understanding its operations:
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