Q. Consider the following statements regarding Monetary Policy of Reserve Bank of India (RBI):
1. The Monetary Policy framework in India is based on Cost Inflation Index (CII) inflation targeting.
2. RBI Governor does not generally have a vote and votes only in the event of an equality of votes in Monetary Policy Committee.
Which of the statements given above is/are correct?
In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
Under the amended RBI Act: The Monetary Policy Committee consists of the following Members:
- the Governor of the Bank—Chairperson, ex officio;
- Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
- One officer of the Bank to be nominated by the Central Board—Member, ex officio; and
- Three persons to be appointed by the Central Government—Members.
The Monetary Policy Committee (MPC) is required to meet at least four times in a year.
- The quorum for the meeting of the MPC is four members.
- Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
Source: ForumIAS
