Monetary Policy Framework of The RBI. What is monetary policy committee?

 

RBI Governor: Shaktikanta Das

The first monetary policy was held on September 29, 2016. Th members of MPC consist of six members, which are listed below

1. Governor of RBI - Present Governor of RBI is Shaktikanta Das

2. Deputy governor of RBI - Michele Debrata Patra

3. One officer from RBI, nominated by the central government - Rajiv Ranjan

4. Dr. Nagesh Kumar - Director and chief executive, Institute of studies in Industrial Developement

5. Shri Saugata Bhatttachaya - Economist

6. Prof. Ram Singh - Director, Delhi school of economics

RBI has four deputy governors, which are as follows

1. Shri Swaminathan J

2. Shri T. Rabi Sankar

3. Shri M. Rajeshwar Rao

4. Dr Michele Debrata Patra

What is the purpose of MPC?

MPC determines the policy repo rate, the rate at which the bank lends money to the other banks and financial institutions.

MPC is required to meet at least four times in a year and each member has the right to cast their vote and mention the possible reasons for choosing them.

Some of the important points about MPC:

  • RBI Act 1934, under section 45ZA, the central government determined the inflation target in terms of Consumer Price Index (CPI). The target is set at 4%, with 6% as the upper tolerance limit and 2% as per lower tolerance limit.
  • The act provides for the constitution of six-member monetary policy committee to determine the policy repo rate required to achieve the inflation target.
  • When the RBI fails to meet the inflation target (i.e, the average inflation rate is more than upper tolerance limit or less than the lower tolerance limit for any three consecutive quarters), it shall require sending a report to the central government, stating the reason the for the failure, remedial actions proposed, an estimate of the time period within which the inflation target shall be achieved.
  • Framework of the monetary policy aims at aligning the operating target - WACR (Weighted Average Call Rate) with the policy repo rate through liquidity management.
What is WACR?

Weighted Average Call Rate is the operating target of the monetary policy. It indicates the banks' overnight cost of borrowing, means the rate at which banks borrow and lend short term funds in the call money market.

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