Monetary Policy Committee (MPC)

♤ MPC is formed under RBI which is tasked with framing monetary policy using tools like the repo rate, reverse repo rate, bank rate, cash reserve ratio (CRR)

♤ The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth. In this pursuit, in May 2016, RBI Act 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 RBI, once in every five years.

♤ Accordingly, the government fixed 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.