MONETARY POLICY FRAMEWORK AGREEMENT

  • On 20th February 2015, The Reserve Bank of India and Government of India signed the Monetary Policy Framework Agreement.
  • Under the agreement, the RBI will be responsible for inflation targeting and achieving price stability in the economy. The same agreement calls for the formation of monetary policy committee to execute the agreement.
  • The Agreement has been given a statutory backing by amending the Reserve Bank of India (RBI) Act, 1934. The amendment was done through the finance bill of union budget 2016-17.
  • Under the agreement RBI will target to keep the inflation at 4% in terms of Consumer Price Index with a standard deviation of 2%.
  • Central government will set the target for inflation in every five years, as per the Amended Reserve Bank of India Act 1934.
                                                                                  Monetary Policy Committee.
  • Came into force on June 27, 2016, after an amendment in RESERVE BANK OF INDIA ACT, 1934.
  • Functions :MPC decides upon periodic changes in policy rates (Repo Rates, Reverse Repo, CRR, SLR etc). It has a target to keep the inflation under a Prescribed limits.
  • MPC composition.
    • It is a six member’s body– three members comes from RBI while other three are appointed by Government.
    • The RBI governor is a member of MPC as well as Ex- officio Chairman.
    • The other two members from RBI are – Deputy Governor in charge of Monetary Policy and an officer of Central bank.
    • The government members are appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
    • The Members of the Monetary Policy Committee appointed by the Central Government shall hold office for a period of four years.
    • 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.

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