Monetary Policy Committee of India is constituted under 45ZB of the RBI Act, 1934 by notification in Official Gazette by Central Government. The Monetary Policy Committee of India is responsible for fixing the benchmark interest rate in India. The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
The quorum for a meeting of the Monetary Policy Committee shall be four members, at least one of whom shall be the Governor and in his absence, the Deputy Governor who is the Member of the
Monetary Policy Committee.
The committee comprises six members - three officials of the Reserve Bank of India and three
external members nominated by the Government of India, which are nominated for 4 years and not eligible for re-appointment and shall not have completed 70 years of age.
The Members of the Monetary Policy Committee shall be appointed by the Central Government on
the recommendations made by Search-cum-Selection Committee consisting of the following
- (a) Cabinet Secretary— Chairperson;
- (b) Governor of the Reserve Bank of India— member;
- (c) Secretary, Department of Economic Affairs— member;
- (d) three experts in the field of economics or banking or finance or Monetary policy to be nominated by the Central Government— members.
They need to observe a "silent period" seven days before and after the rate decision for "utmost confidentiality". The Governor of the Reserve Bank of India is the ex officio chairperson of the committee.
Decisions are taken by the majority with the Governor having the casting vote in case of a tie. The Bank shall appoint a Secretary to the Monetary Policy Committee to provide secretariat support to the said Committee. The Secretary shall perform such functions and in such manner as may be specified by the regulations made by the Central Board.
Under the Monetary Policy Chapter of the RBI Act, 1934 as amended by Finance Act, 2016, the Central Government shall, in consultation with the Bank, determine the inflation target in terms of the Consumer Price Index, once every five years.
The current mandate of the committee is to maintain 4% annual inflation until March 31, 2021, with an upper tolerance of 6% and a lower tolerance of 2%.