Context: The Reserve Bank of India (RBI) uses the Monetary Policy Committee (MPC) to set policy rates, primarily the repo rate, to achieve the target inflation rate and ensure macroeconomic stability.
What is the Monetary Policy Committee (MPC)?
Constitution: Established under the RBI Act, 1934 (Amendment, 2016).
Objective: Maintain price stability, while keeping growth in mind.
Primary Mandate: Target Consumer Price Index (CPI) inflation at 4% ± 2%.
Composition
Total Members: 6
1RBI Governor – Chairperson
2Deputy Governor (RBI) in charge of monetary policy
3One RBI officer nominated by the central board
4–6. Three external members nominated by the Government of India for 4-year terms
Voting: Each member has one vote, decisions made by majority. In case of a tie, Governor’s vote is decisive.
Functions of MPC
1Fixing Policy Rates:
oRepo Rate, Reverse Repo Rate, Marginal Standing Facility (MSF)
oInfluences borrowing costs, inflation, and liquidity.
2Inflation Targeting:
oEnsures CPI inflation stays within 2–6% band.
3Monitoring Macroeconomic Indicators:
oGrowth, liquidity, fiscal policy, exchange rate, and global conditions.
4Policy Reviews:
oMeets every two months to review and announce the monetary policy stance.
Significance
- Brings transparency, accountability, and collective decision-making to RBI’s monetary policy.
- Reduces the influence of individual discretion, ensuring a rules-based approach.
- Aligns India with global practices of inflation-targeting committees (e.g., UK, Brazil, South Africa).
IAS-2026 - OPTIONAL / GEOGRAPHY / PUBLIC ADMINISTRATION / SOCIOLOGY / ANTHROPOLOGY / ORIENTATION ON 03 & 04-10-2025 
