Monetary Policy Committee

Finance Minister announced Monetary Policy Committee expected to bring value and transparency to rate-setting decisions.The Government amended the RBI Act to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee MPC on June 27 2016

Current system of monetary policy

• Monetary policy decision based on the multiple indicator approach 
• Rate decision were take into account inflation, growth, employment banking stability the need for a stable exchange rate 
• Only governor sign is required to pass the monetary policy 

Under MPC 

• RBI abandon the multiple indicator approach and make inflation targeting the primary objective of Monetary Policy 
• Decision could be made through majority vote 
• Both Government and RBI members on the MPC suggested for accountability 

Monetary Policy Committee

• Six member committee 
• Three members from RBI 

1. RBI Governor as Chairman 
2. Deputy Governor as Vice Chairman 
3. Executive Director official nominated by Central Bank 

• Other three are external members appointed by the center on the recommendation of selection committee headed by cabinet secretary on the condition. 

1. Will be an expert in the field of bank or monetary policy or finance 
2. Appoint for a period of four years 
3. Shall not eligible for reappointment 

Meetings

• The MPC will meet four times a year 
• Will publicise the decision after each meeting 

Risk of conflict

• Criteria for the appointment of various external members 

1. Whether the member would be having a full time member 

1. Remuneration 

• Executive Director report to the Deputy Governor, who does the performance appraisal of ED. This would be difficult for the person to have an independent move.