Monetary Policy Committee of India (MPC): Members & Functions

The Monetary Policy Committee (MPC) is a statutory body constituted by the Reserve Bank of India (RBI) under the RBI Act, 1934 to determine the policy interest rate required to achieve the inflation target set by the Government of India. The MPC consists of six members—three from the RBI, including the RBI Governor as the ex-officio Chairperson, and three appointed by the Central Government. This committee plays a crucial role in maintaining price stability while supporting economic growth, making it a key institution in India’s monetary policy framework.

The Monetary Policy Committee is one of the most important topics for UPSC IAS Examination with regards to General Studies Paper 3. In this article on the Monetary Policy Committee, we shall discuss its overview, composition, and aims/functions in detail. This will be very useful for aspirants in the UPSC Prelims Exam.

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What is Monetary Policy Committee (MPC)?

The Monetary Policy Committee (MPC) is a six-member body formed by the RBI to set the repo rate and manage India’s monetary policy. Its main goal is to maintain price stability while supporting economic growth. The committee includes three RBI officials and three external members appointed by the Government.

Key Features of Monetary Policy Committee of the RBI for UPSC
Feature	Details
Establishment	Constituted in 2016 (under Section 45ZB of RBI Act, 1934)
Objective	Maintain price stability (inflation targeting) while keeping growth in mind.
Inflation Target	4% CPI with a tolerance band of +/- 2% (i.e., 2% to 6%).
Policy Instrument	Repo Rate (primary tool for signaling policy stance). Other rates (Reverse Repo, MSF, Bank Rate, CRR, SLR) also used.
Meetings	At least 4 times a year (bi-monthly).
Latest Meeting	April 9th, 2025
Next Meeting	June 4th-6th, 2025
Composition	6 Members 3 nominated by RBI 3 appointed by GoI (experts in economics/finance)
Decision Making	By majority vote; the Governor has a casting vote in case of a tie.
Current Stance (Apr '25)	Accommodative (shifted from neutral).
Current Repo Rate (Apr '25)	6.00% (reduced by 25 bps in April 2025).

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Latest Updates on Monetary Policy Committee

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducted its first bi-monthly monetary policy meeting for the financial year 2025-26, which concluded on April 9, 2025. Here are the key highlights:

• Repo Rate Cut: The MPC unanimously decided to reduce the repo rate by 25 basis points to 6.00%. This is the second consecutive rate cut, following a 25 bps reduction in the February 2025 meeting.
• Policy Stance: The MPC shifted its policy stance from "neutral" to "accommodative". This change signals that the central bank is now more inclined towards supporting economic growth and may consider further rate cuts in the future, absent any major negative shocks.
• Standing Deposit Facility (SDF) Rate: Adjusted to 5.75%.
• Marginal Standing Facility (MSF) Rate and Bank Rate: Adjusted to 6.25%.

Download the Key Highlights of the RBI MPC Meeting April 2025 in Detail!

History and Formation of RBI Monetary Policy Committee

On June 27, 2016, the Monetary Policy Committee was established. The MPC was founded under the Reserve Bank of India Act of 1934 to increase transparency and accountability in India's monetary policymaking. Prior to the creation of the committee, the Reserve Bank of India's Governor made all significant interest rate decisions on his own. 

The MPC meets at least four times a year, and following each meeting, the monetary policy is published, with each member declaring their position. The Urjit Patel Committee was the first to suggest forming a five-member Monetary Policy Committee.

Following that, the government recommended the formation of a seven-member commission.

The Monetary Policy Department (MPD) of the Reserve Bank aids the MPC in policy development. The Financial Markets Operations Department (FMOD) implements monetary policy through daily liquidity management operations.

Need for Monetary Policy

The Monetary Policy Committee is needed for the following reasons:

• Monetary policy refers to the central bank's approach to using monetary tools within its competence to achieve the Act's objectives.
• Regarding monetary policy, the RBI's major purpose is to preserve price stability while seeking growth.
• Price stability is a necessary condition for long-term expansion.
• The updated RBI Act of 1934 further states that the Indian government, in collaboration with the Reserve Bank, sets the inflation objective (4 percent + 2%) every five years.

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The Monetary Policy Committee (MPC) comprises six members, including:

Learn more about Monetary Aggregates!

Selection of members and tenure of office in MPC

A Search-cum-Selection Committee chaired by the Cabinet Secretary, with the RBI Governor and Economic Affairs Secretary as members, as well as three experts in economics, banking, finance, or monetary policy, will choose the government's nominees to the MPC. MPC members will be appointed for a four-year term and will not be eligible for reappointment.

Criteria Used to Make Decisions

Decisions will be made by a majority vote, with each member having one vote. The governor will not have veto power over the other panel members but will be able to cast a tie-breaking vote in the event of a tie.

The Monetary Policy Committee (MPC) has several important functions:

• The MPC formulates the monetary policy of India. It sets the target for inflation and determines the appropriate policy interest rate to achieve that target.
• One of the key functions of the MPC is to target inflation and maintain price stability in the economy. It aims to keep inflation within a specified range, which is currently set at 4% with a tolerance band of +/- 2%.
• The MPC decides on the repo rate, which is the rate at which the central bank lends money to commercial banks. By adjusting the repo rate, the MPC influences borrowing costs for businesses and individuals. It thereby impacts economic activity and inflation.
• The MPC analyzes various economic and financial indicators to assess the current and future state of the economy. This includes examining factors such as GDP growth, inflation trends, employment levels, and global economic conditions.
• The MPC communicates its policy decisions and the rationale behind them to the public and financial markets. This transparency helps in maintaining credibility and managing market expectations.

Objectives of Monetary Policy Committee of India

The RBI MPC was formed with the below mentioned objectives:

• According to the Chakravarty Committee's recommendations, price stability, economic growth, equity, social justice, and supporting the establishment of new financial enterprises are all vital aspects of India's monetary policy.
• The Reserve Bank of India (RBI) aims to keep inflation tolerable while the Indian government strives to boost the country's GDP growth rate.
• To meet the country’s inflation target and achieve its major objectives, the Monetary Policy Committee estimates the necessary policy interest rate.
• The Reserve Bank lends overnight liquidity to banks against the collateral of government and other approved assets at a repo rate under the liquidity adjustment facility (LAF).

Also, study about the Five Year Plans in India from the linked article.

The major instruments of monetary policy include the following:

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Importance of Monetary Policy Committee

The Monetary Policy Committee holds the following significance:

• Economic Stability: MPC is vital in ensuring stability by regulating key economic indicators like inflation and interest rates.
• Inflation Control: It helps control inflation, maintaining price stability crucial for sustainable economic growth.
• Interest Rate Management: MPC sets benchmark interest rates, influencing borrowing costs, spending, and investment.
• Predictable Policy Framework: Provides a transparent and predictable monetary policy framework, aiding businesses and investors in decision-making.
• Government and RBI Collaboration: Fosters collaboration between the government and the Reserve Bank of India in shaping monetary policies.
• Expertise Inclusion: Comprising experts from diverse fields, the MPC brings a comprehensive understanding of economic nuances.
• Public Accountability: Enhances accountability as MPC decisions are public, ensuring scrutiny and understanding of policy choices.

We hope that all your doubts regarding the Monetary Policy Committee will be cleared after going through this article. You can download the Testbook App now to check out various other topics relevant to the UPSC IAS Exam.