Monetary Policy Committee (MPC)
The Committee
- Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC).
- MPC will determine the policy interest rate required to achieve the inflation target.
- The first such MPC was constituted in September 2016.
Members of MPC
- As per the amended RBI act, the MPC shall consist of
- RBI Governor as its ex officio chairperson,
- Deputy Governor in charge of monetary policy,
- An officer of the Bank to be nominated by the Central Board, and
- Three persons to be appointed by the central government.
Functions of MPC
- Setting Policy Interest Rates: The primary function of the MPC is to determine the policy interest rates, specifically the repo rate.
- Inflation Targeting: The current inflation target set by the government is a Consumer Price Index (CPI) inflation target of 4% with a tolerance band of +/- 2%.
- Economic Analysis and Forecasting: The MPC conducts thorough analysis and forecasting of various economic indicators, including inflation, GDP growth, employment, fiscal conditions, and global economic developments.
- Decision-Making: The MPC meets at least four times a year to review the monetary policy stance.
Current Challenges
Domestic challenges
These domestic challenges include:
- Growing risks to consumption demand amid soaring food inflation,
- An uneven monsoon adversely affecting kharif crops,
Higher interest rates
- Inflation is still high at 6.8 per cent. While it is expected to come down sharply, there is still some pessimism on Kharif output, especially relating to pulses, which has the potential to push up prices further.
- Earlier, RBI Governor said the frequent incidences of recurring food price shocks pose a risk to anchoring of inflation expectations, which has been underway since September 2022.
External challenges
Rising global crude oil prices
- International crude oil prices have averaged nearly $89 per barrel.
- At the time of the last RBI policy, oil prices averaged around $79 per barrel, implying a 12.6 per cent jump in prices since the previous policy.
Russia – Ukraine war
- Russia – Ukraine war is further creating a supply-chain bottlenecks for many commodities.