Consider the following statements regarding the "Monetary Policy Committee".

Question

Consider the following statements regarding the "Monetary Policy Committee".

i. The RBI Governor has to vote both in the first instance and in case of a tie.

ii. The monetary policy committee has to meet three times a year.

Choose the correct answer:

1. A. i only (Correct answer)
2. B. ii only
3. C. Both i and ii
4. D. Neither i nor ii

Correct Answer

Option A — i only

Detailed Solution & Explanation

The correct answer is i only.

Key Points

• Statement i is correct. The RBI Governor votes in the first instance like every other member, and in the event of a tie has a second, casting vote.
• Statement ii is incorrect. The Monetary Policy Committee must meet at least four times a year, not three. In practice it meets six times a year, roughly once every two months.

Additional Information

• The MPC was constituted in 2016, following the amendment of the RBI Act, 1934 by the Finance Act 2016, on the recommendation of the Urjit Patel Committee (2014). It replaced the earlier arrangement in which the Governor decided rates on the advice of a Technical Advisory Committee.
• Composition — six members:
  • The RBI Governor (ex officio Chairperson)
  • The Deputy Governor in charge of monetary policy
  • One officer of the RBI nominated by the Central Board
  • Three external members appointed by the Central Government, for a term of four years, not eligible for reappointment
• Decisions are by majority, and each member has one vote. The quorum is four, of whom at least one must be the Governor or, in the Governor's absence, the Deputy Governor who is a member.
• The minutes are published on the fourteenth day after the meeting, recording the resolution, each member's vote and a statement of their reasons — a significant advance in the transparency of Indian monetary policy.
• The inflation target is set by the Central Government in consultation with the RBI, once every five years. It is currently 4% CPI inflation, with a tolerance band of +/- 2%. If the target is missed for three consecutive quarters, the RBI must submit a report to the Central Government explaining the failure, the remedial actions proposed and an estimate of when the target will be met.
• The MPC determines the policy repo rate. Other instruments — CRR, SLR, the standing facilities and open market operations — remain with the RBI outside the MPC's remit.