MONETARY POLICY COMMITTE
Monetary policy decisions are taken by central banks( in India by Reserve Bank of India). On June 27, 2016, the Government amended the RBI Act to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee (MPC).
The new MPC is to be a six-member; It will feature three members from the RBI — the Governor, a Deputy Governor and another official — and three independent members to be selected by the Government.
A search committee will recommend three external members, experts in the field of economics, banking or finance, for the Government appointees. The MPC will meet four times a year to decide on monetary policy by a majority vote. And if there’s a tie between the ‘Ayes’ and the ‘Nays’, the RBI governor gets the deciding vote.
RBI set up an Expert Committee under Urijit Patel to revise the monetary policy framework, and it came up with its report in January 2014. It suggested that RBI abandon the ‘multiple indicator’ approach and make inflation targeting the primary objective of its monetary policy. It also mooted having an MPC so that these decisions could be made through majority vote. Having both Government and RBI members on the MPC was suggested for accountability. The Government would have to keep its deficit under check and RBI would owe an explanation for runaway inflation.
FACTS AND FIGURES
The Reserve Bank of India is the supreme monetary and banking authority in the country. It keeps the cash reserve of all scheduled banks and hence is known as Reserve Bank. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. Its main function includes; formulate, implements and monitors the monetary policy, prescribes broad parameters of banking operations within which the country’s banking and financial system functions, Manages the Foreign Exchange Management Act, 1999, Issues and exchanges or destroys currency and coins not fit for circulation, Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. RBI Governor Raghuram Rajan
MONETARY POLICY: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.
INFLATION: It is an economic condition in which prices of goods and services rises and value of money falls or money circulation exceeds the production of goods and services.
FULL ARTICLE: July 4, 2016: BY AARATI KRISHNAN