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Why in News:

  • The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India reduced the repo rate at its second meeting this year by 25 basis points to 5.75% to address growth concerns.

What is Monetary Policy Committee?

  • The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB.The MPC determines the policy interest rate required to achieve the inflation target.
  • The Reserve Bank’s Monetary Policy Department (MPD) assists the Monetary Policy Committee (MPC) in forming the monetary policy. The Monetary Policy Committee determines the policy rates required to achieve the inflation target.

Composition of Monetary Policy Committee:

  • The 6-member Monetary Policy Committee (MPC) constituted by the Central Government as per the Section 45ZB of the amended RBI Act, 1934. The first meeting of the Monetary Policy Committee (MPC) was held on in Mumbai on October 3, 2016.
  • The composition of the MPC as on April 2019 is as follows;
  • 1. Governor of the Reserve Bank of India – Chairperson, ex officio; (Shri Shaktikanta Das)
  • 2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy – Member, ex officio; (Dr. Viral V. Acharya).
  • 3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio; (Dr. Michael Debabrata Patra)
  • 4. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad –Member
  • 5. Professor Pami Dua, Director, Delhi School of Economics – Member
  • 6. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member
  • Except ex-officio members all members will hold the office for a period of 4 years or until further orders, whichever is earlier.

Instruments of Monetary Policy:

  • The instruments of monetary policy are of two types:
  • 1. Quantitative Instruments: General or indirect (Cash Reserve Ratio, Statutory Liquidity Ratio, Open Market Operations, Bank Rate, Repo Rate, Reverse Repo Rate, Marginal standing facility and Liquidity Adjustment Facility (LAF))
  • 2. Qualitative Instruments: Selective or direct (change in the margin money, direct action, moral suasion)
  • It is worth to mention that all of the above-mentioned instruments of the monetary policy are managed as per the requirement of the economy. These instruments maintain the flow of money supply in the economy so that the rate of inflation can be stabilised for ensuring the growth of the Economy.
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