The Monetary Policy Committee (MPC) is a pivotal institution in India's economic framework, tasked with shaping the country's monetary policy to ensure price stability while fostering economic growth. Established to bring transparency and accountability to monetary policy decisions, the MPC plays a critical role in determining the policy interest rate, primarily the repo rate, to manage inflation within a targeted range.
| Monetary Policy Committee (MPC) Key Details | |
|---|---|
| Monetary Policy Committee (MPC) Established in | September 29, 2016 |
| Monetary Policy Committee (MPC) Recommended By | Urjit Patel Committee (2014) |
| Monetary Policy Committee (MPC) Chairman | Sanjay Malhotra (RBI Governor, as of April 2025) |
| Monetary Policy Committee (MPC) Headed By | Governor of the Reserve Bank of India (Ex-officio Chairperson) |
| Monetary Policy Committee (MPC) Constituted By | Central Government under Section 45ZB of the RBI Act, 1934 |
| Monetary Policy Committee (MPC) Members 2025 |
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This article provides a comprehensive overview of the MPC, covering its constitution, leadership, members, functions, and relevance for UPSC aspirants. It also addresses frequently asked questions to enhance understanding.
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What is the Monetary Policy Committee (MPC)?
The Monetary Policy Committee of India is a statutory body constituted under the Reserve Bank of India Act, 1934, as amended by the Finance Act, 2016.
Its primary objective is to maintain price stability by targeting a specific inflation rate, currently set at 4% with a tolerance band of ±2% (i.e., 2% to 6%) until March 31, 2026. The MPC achieves this by setting the repo rate, the rate at which the Reserve Bank of India (RBI) lends to commercial banks, influencing money supply and inflation.
The MPC replaced the earlier system where the RBI Governor solely decided monetary policy, often advised by a Technical Advisory Committee (TAC). The committee-based approach enhances transparency, as decisions are made collectively, and minutes of meetings are published, detailing each member's rationale.
Monetary Policy Committee is Constituted By
The Monetary Policy Committee is constituted by the Central Government under Section 45ZB of the amended RBI Act, 1934. The government notifies the formation of the MPC through the Official Gazette. The committee comprises six members:
- Three ex-officio members from the RBI:
- The Governor of the RBI (Chairperson).
- The Deputy Governor in charge of monetary policy.
- One RBI official nominated by the RBI Central Board.
- Three external members appointed by the Central Government based on recommendations from a Search-cum-Selection Committee. This committee includes:
- The Cabinet Secretary (Chairperson).
- The RBI Governor.
- The Secretary of the Department of Economic Affairs, Ministry of Finance.
- Three experts in economics or banking nominated by the government.
External members serve a four-year term and are not eligible for reappointment, ensuring fresh perspectives.
Monetary Policy Committee is Headed By
The Monetary Policy Committee is headed by the Governor of the Reserve Bank of India, who serves as the ex-officio Chairperson. As of April 2025, the RBI Governor is Sanjay Malhotra. The Governor chairs MPC meetings, facilitates discussions, and holds a casting vote in case of a tie, ensuring decisive outcomes.
Monetary Policy Committee Established in India
The Monetary Policy Committee was established in India on September 29, 2016, following amendments to the RBI Act, 1934, through the Finance Act, 2016. The first MPC meeting was held on October 3-4, 2016, in Mumbai.
The establishment of the MPC marked a shift to a flexible inflation targeting framework, formalized by the Monetary Policy Framework Agreement (MPFA) signed between the Government of India and the RBI in February 2015.
This framework was recommended by the Urjit Patel Committee (2014) to modernize India's monetary policy process and align it with global standards, such as those in New Zealand and other inflation-targeting nations.
Monetary Policy Committee UPSC
For UPSC aspirants, the Monetary Policy Committee is a crucial topic under General Studies Paper 3 (Indian Economy). Questions may appear in both Prelims and Mains, focusing on the MPC's composition, objectives, functions, and its role in maintaining economic stability. Key points to note for UPSC preparation:
- Objective: Maintain 4% CPI inflation (±2%) while supporting growth.
- Composition: Six members (three RBI, three external).
- Functions: Set the repo rate, publish monetary policy reports, and ensure transparency.
- Significance: Enhances accountability, reduces government influence, and stabilizes the economy.
- Instruments: Repo rate, reverse repo rate, cash reserve ratio (CRR), statutory liquidity ratio (SLR), and open market operations (OMO).
Aspirants should also study related concepts like inflation targeting, monetary policy instruments, and the Chakravarty Committee recommendations, which emphasize price stability, growth, and equity.
Monetary Policy Committee of India: Functions and Significance
The Monetary Policy Committee of India has several critical functions:
- Setting the Repo Rate: Determines the policy rate to control inflation within the 2-6% band.
- Inflation Targeting: Ensures the Consumer Price Index (CPI) inflation aligns with the 4% target.
- Economic Stability: Balances price stability with economic growth, influencing borrowing, spending, and investment.
- Transparency: Publishes meeting minutes and a Monetary Policy Report every six months, explaining inflation sources and forecasts for 6-18 months.
- Accountability: If inflation exceeds the target range for three consecutive quarters, the RBI must submit a report to the government detailing reasons, remedial actions, and timelines.
The MPC's significance lies in its collaborative approach, inclusion of external expertise, and public accountability, making it a cornerstone of India's monetary policy framework.
Monetary Policy Committee Members
The Monetary Policy Committee members as of April 2025 are:
- Sanjay Malhotra (RBI Governor, Chairperson).
- M. Rajeshwar Rao (Deputy Governor, RBI, in charge of monetary policy).
- Rajiv Ranjan (Executive Director, RBI, nominated by the RBI Board).
- Ram Singh (Director, Delhi School of Economics, University of Delhi, external member).
- Saugata Bhattacharya (Economist, external member).
- Nagesh Kumar (Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi, external member).
These members were reconstituted in October 2024, with external members appointed for a four-year term.
MPC Members: Appointment and Tenure
The MPC members are appointed as follows:
- RBI Members: The Governor, Deputy Governor, and one RBI official are ex-officio members, with no fixed tenure for these roles.
- External Members: Appointed by the Central Government based on expertise in economics, banking, finance, or monetary policy. They serve a non-renewable four-year term and must not be MPs, legislators, public servants, RBI employees, or above 70 years of age.
The quorum for an MPC meeting is four members, including at least the Governor or Deputy Governor. Decisions are made by majority vote, with the Governor holding a casting vote in case of a tie. Members observe a seven-day silent period before and after rate decisions to ensure confidentiality.
RBI Monetary Policy Committee
The RBI Monetary Policy Committee operates under the RBI's Monetary Policy Department (MPD), which provides analytical support and stakeholder inputs to formulate policies.
The MPC meets at least four times a year, typically on a bi-monthly basis (six meetings annually since 2016). After each meeting, the RBI publishes the policy decision, and on the 14th day, the minutes, including each member's vote and statement, are released.
The MPC's decisions impact the economy through tools like:
- Repo Rate: Controls inflation by influencing borrowing costs.
- Reverse Repo Rate: Absorbs excess liquidity.
- Cash Reserve Ratio (CRR): Regulates bank reserves.
- Open Market Operations (OMO): Manages money supply.
As of April 9, 2025, the MPC reduced the repo rate by 25 basis points to 6.00%, adopting an accommodative stance to support growth amid declining inflation (projected at 4.2% for 2025-26).
Monetary Policy Committee Members 2025
The Monetary Policy Committee members in 2025 are the same as listed above, with the reconstituted panel announced in October 2024. The external members—Ram Singh, Saugata Bhattacharya, and Nagesh Kumar—were appointed for their expertise in economics and industrial development. Their term extends until October 2028, unless otherwise notified. The RBI members, including Governor Sanjay Malhotra, continue to guide the committee's decisions.
FAQs About the Monetary Policy Committee (MPC)
Q) How Many Members Are in the Monetary Policy Committee?
The Monetary Policy Committee consists of six members: three from the RBI (Governor, Deputy Governor, and one RBI official) and three external members appointed by the Central Government.
Q) Who Are the Members of the Monetary Policy Committee 2025?
As of April 2025, the MPC members are:
- Sanjay Malhotra (RBI Governor, Chairperson).
- M. Rajeshwar Rao (Deputy Governor, RBI).
- Rajiv Ranjan (Executive Director, RBI).
- Ram Singh (External Member, Delhi School of Economics).
- Saugata Bhattacharya (External Member, Economist).
- Nagesh Kumar (External Member, Institute for Studies in Industrial Development).
Q) Who Recommended the Monetary Policy Committee?
The Urjit Patel Committee (2014) recommended the establishment of the Monetary Policy Committee to adopt a flexible inflation targeting framework. Earlier suggestions for an MPC-like body were made by the Y.V. Reddy Committee (2002), Tarapore Committee (2006), Percy Mistry Committee (2007), and Raghuram Rajan Committee (2009).
Q) How Many Times Is an MPC Conducted in a Year?
The MPC is required to meet at least four times a year, as mandated by the RBI Act. However, it typically meets six times annually (bi-monthly) to assess economic conditions and decide policy rates. Additional meetings may be held in exceptional circumstances, such as during the COVID-19 pandemic.
Conclusion
The Monetary Policy Committee (MPC) is a cornerstone of India's monetary policy framework, ensuring price stability and economic growth through a transparent and collaborative process.
Constituted by the Central Government, headed by the RBI Governor, and comprising six expert members, the MPC plays a vital role in setting the repo rate and managing inflation.
For UPSC aspirants, understanding the MPC's composition, functions, and significance is essential for mastering Indian Economy topics. Stay updated with the latest MPC members and decisions, as they are frequently tested in competitive exams.
For further details, visit the RBI website (www.rbi.org.in) or refer to the Monetary Policy Report published every six months.
