Monetary Policy Committee (MPC)

11) Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?

1. It decides the RBI’s benchmark interest rates.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below :

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 2 and 3 only

Solution: A

 It was one of the most significant reform in India’s monetary policy framework post independence.

Explanation :

Statement 1: Monetary Policy Committee (MPC) decides the repo rates, CRR, SLR etc. It replaced the earlier system where the RBI governor made the decision.   

Statement 2:  It consists of six members (RBI Governor, Deputy Governor RBI, One RBI officer and three members nominated by the government), and they hold office for a period of four years.

Statement 3:  The Governor of the RBI is the ex-officio Chairperson of Monetary Policy Committee (MPC).