Monetary policy is the process by which monetary authority of a country (RBI) monitor the supply of money in the economy by its control over interest rates to maintain price stability and achieve high economic growth
Monetary Policy Objectives
Price Stability implies promoting economic development and controlling inflation or deflation and exchange rate
Controlled Expansion Of Bank Credit
One of the important functions of RBI is the controlled expansion of bank credit and money supply in the economy
Promotion of Fixed Investment
The aim here is to increase the productivity of investment by restraining non-essential fixed investment.
Restriction of Inventories and stocks
main objective of this policy is to avoid over-stocking and idle money in the organization.
To Promote Efficiency
To increase the efficiency in the financial system
Tries to incorporate structural changes such as deregulating interest rates, ease operational constraints in the credit delivery system etc.
Reducing the Rigidity
RBI tries to bring about the flexibility in the operations which provide a considerable autonomy.
It encourages more competitive environment and diversification.
It maintains its control over financial system wherever necessary to maintain the discipline
Monetary Policy Committee
The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide for a statutory framework for a Monetary Policy Committee
It’s a statutory body, started in 2016
MPC is a 6 members body
3 officials of the RBI
3 external members nominated by GoI
Nominated members’ term is 4 years, no reappointment
They recommended by Search-cum-Selection Committee
Governor of RBI
Secretary Department of Economic Affairs
3 experts in related fields
MPC is required to meet at least four times in a year.
The quorum for the meeting of the MPC is four members.
Each member of the MPC has one vote, and Governor has a second or casting vote.
Once in every six months, RBI will publish Monetary Policy Report to explain
the sources of inflation
the forecast of inflation for 6-18 months ahead
As per Section 45ZA, Govt. determine the inflation target in term of CPI one in every 5 years
Minutes of the meeting have to publish in 14th day