growth, and to meet the challenge of an increasingly complex economy, RBI would operate a Monetary Policy Framework.

Recommendations to constitute MPC:

Advantages of Targeting Inflation

♤ Lowers the interest rates- lower interest rate increases borrowings, boosts investment and thereby activity in the economy.

♤ Helps in long term planning for public and private entities and in policy formulation

♤ Redistributes income and wealth between different groups in society. High inflation benefits some groups at the expense of others.

♤ Provides a climate of certainty and thus boosts lender confidence. High inflation implicitly penalizes the lender.

Many committees have suggested setting up of MPC. For example, in 2002 the Y. V. Reddy Committee recommended for a MPC to decide policy actions. Subsequently, suggestions were made to set up a MPC in 2006 by the Tarapore Committee, in 2007 by the Percy Mistry Committee, in 2009 by the Raghuram Rajan Committee and then in 2013, both in the report of the Financial Sector Legislative Reforms

Commission (FSLRC) and the Dr. Urjit R. Patel (URP) Committee.