MONETARY POLICY UNCHANGED
The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5 per cent for the ninth time amid risks from higher food inflation.
The six-member MPC also continued with the monetary policy stance of withdrawal of accommodation. Four out of six MPC members voted in favour of the rate decision.
Announcing the decision, RBI Governor Shaktikanta Das said that inflation broadly has been on a declining trajectory.
WHAT IS MONETARY POLICY COMMITTEE?
- The Monetary Policy Committee (MPC) is a committee constituted by the Central Government and led by the Governor of RBI.
- Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government. The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
- Monetary Policy Committee was formed with the mission of fixing the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level.
- The committee determines the policy interest rate required to achieve the inflation target.
- The 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.
- Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain the sources of inflation and the forecasts of inflation for 6-18 months ahead.
COMPOSITION OF THE COMMITTEE
- The committee comprises of six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
- Governor of RBI acts as the Chairperson (ex-officio) of the committee.
- Members nominated by the Government hold office for a period of four years from the date of appointment.
- None of the Central Government nominees are eligible to be re-appointed.
- The committee meets quarterly i.e. every three months.
- Decisions are taken by majority vote with each member having a vote.
- In case of a tie, the Chairman has a casting vote.
WHAT IS SECTION 45 ZN?
This section says that in case the RBI fails to meet the inflation target, it has to present a report to the government explaining the reasons for the failure.
In the report, the central bank will have to mention the remedial actions it proposes to take, and an estimated time within which the inflation target will be achieved following the timely implementation of the proposed remedial actions.
The report is required to be sent to the government within one month from the date on which the RBI failed to meet the inflation target.
HOW HAS THE STOCK MARKET REACTED?
The equity benchmark indices Sensex and Nifty continued to trade lower on Thursday.
The NSE Nifty 50 index was down 0.4% at 24,199.9, as of 11:12 a.m IST, and the S&P BSE Sensex had shed 0.38% to 79,161.1.
Both indexes were down about 0.3% ahead of the decision. They extended losses to about 0.6% immediately after the policy announcement, before trimming some losses.
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