Monetary Policy – Indian Economy

Table of Contents

DEFINITION:

It is a macroeconomic policy designed by the central bank of the country to manage money supply and interest rates.
It helps in shaping variables such as:

SIGNIFICANCE

Price stability ( By controlling inflation)
Economic Growth
Job Creation
Social Justice in any economy

MILTON FRIEDMAN

An American economists whose research on monetary policy made this subject very popular and important.
He won a Nobel in Economics in this regard in 1976

PHILIPS CURVE :

Moderate inflation is good for the economy.
RBI tries to keep inflation between 2-6% consumer price index using bi-monthly monetary policy made by monetary Policy committee.

MONETARY POLICY COMMITTEE

MPC is a statutory bodyestablished under section 45ZB of the Reserve Bank of India Act 1934.
It is set up based on the recommendation of the Urjit Patel Committee.

OBJECTIVES:

Price stability
Accelerating the growth of the economy
Exchange rate stabilization
Balancing savings and investment
Generating employment
Financial stability

COMPOSITION OF MPC

The MPC meeting requires a quorum of four members.
Each member of the MPC has one vote, with the Governorhaving a second or casting vote in the event of a tie.

Q) 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