Monetary Policy Committee – Part 3

Hi everybody, it is good to be back in business after a small gap. I am sure you are following the website regularly. We conducted a seminar titled ‘Financial Horizon and Regulatory complexity ‘. Some of the veterans of Reserve Bank of India and IRDA addressed the seminar and the response was quite encouraging…

Now let’s continue our discussion on the framework of the Monetary Policy Committee.

“The government has decided to bring the provisions of amended RBI Act regarding constitution of MPC into force on June 27, 2016 so that statutory basis of MPC is made effective,” according to a finance ministry statement. “The rules governing the procedure for selection of members of Monetary Policy Committee and terms and conditions of their appointment and factors constituting failure to meet inflation target under the MPC framework have also been notified on June 27, 2016.”

The Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016, to provide for a statutory and institutionalized framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth. The Monetary Policy Committee would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. Repo rate is the rate which a central bank charges when a scheduled commercial bank / primary dealer avails of liquidity from the central bank. A Committee-based approach for determining the Monetary Policy will add lot of value and transparency to monetary policy decisions. The meetings of the Monetary Policy Committee shall be held at least 4 times a year and it shall publish its decisions after each such meeting.

The provisions of the RBI Act relating to Monetary Policy have been brought into force through a Notification in the Gazette of India Extraordinary on 27.6.2016. The factors constituting failure to meet inflation target under the Monetary Policy Committee Framework have also been notified in the Gazette on 27.6.2016. The Government, in consultation with RBI, has notified the inflation target in the Gazette of India Extraordinary dated 5^th August 2016 for the period beginning from the date of publication of this notification and ending on the March 31, 2021, as under: –

As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government. In exercise of the powers conferred by section 45ZB of the Reserve Bank of India Act, 1934, the Central Government has accordingly constituted, through a Gazette Notification dated 29^th Sept 2016, the Monetary Policy Committee of RBI, with the following composition, namely: –

1. The Governor of the Bank – Chairperson, ex officio;
2. Deputy Governor of the Bank, in charge of Monetary Policy – Member, ex officio;
3. One officer of the Bank to be nominated by the Central Board – Member, ex officio;
4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member
5. Professor Pami Dua, Director, Delhi School of Economics (DSE) – Member
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management (IIM), Ahmedabad – Member

The Members of the Monetary Policy Committee appointed by the Central Government shall hold office for a period of four years, with immediate effect or until further orders, whichever is earlier.

(Source: www.pib.nic.in/newsite/PrintRelease.aspx?relid=151264)

India has thus joined many countries of the world in following a committee approach for the monetary policy prescriptions.

The first meeting of the Monetary Policy Committee (MPC), constituted under section 45ZB of the amended Reserve Bank of India Act, 1934, was held on October 3 and 4, 2016 at the Reserve Bank of India, Mumbai.

The meeting was attended by all the members – Dr. Chetan Ghate, Professor, Indian Statistical Institute; Dr. Pami Dua, Director, Delhi School of Economics; and Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad; Dr. Michael Debabrata Patra, Executive Director (the officer of the Bank nominated by the Central Board under Section 45ZB(2)(c) of the amended Act); Shri R. Gandhi, Deputy Governor in charge of monetary policy – and was chaired by Dr. Urjit R. Patel, Governor.

According to Section 45ZL of the amended Reserve Bank of India Act, 1934, the Reserve Bank shall publish, on the fourteenth day after every meeting of the Monetary Policy Committee, the minutes of the proceedings of the meeting which shall include the following, namely: –

1. the resolution adopted at the meeting of the Monetary Policy Committee;
2. the vote of each member of the Monetary Policy Committee, ascribed to such member, on resolutions adopted in the said meeting; and
3. the statement of each member of the Monetary Policy Committee under sub-section (11) of section 45ZI on the resolution adopted in the said meeting.

Accordingly, RBI has posted the minutes of the meeting in its website. Please click the following link

www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=38332

See you soon with the MPC framework globally…