Why Is RBI Monetary Policy Committee Important?

MPC RBI News: The MPC meeting was supposed to take place on Monday, February 7, 2022. This was postponed to February 8-10 in the wake of the sad demise of veteran singer Lata Mangeshkar.

New Delhi: The Reserve Bank of India (RBI) has postponed its Monetary Policy Committee (MPC) meeting in the wake of the sad demise of veteran singer Lata Mangeshkar. The Maharashtra government announced a public holiday on Monday for mourning the loss of the singer who captured the imagination of millions across the globe for more than seven decades. The MPC meeting was supposed to take place on Monday, February 7, 2022. This was postponed to February 8-10.

Meeting of the Monetary Policy Committee – Rescheduled #monetarypolicyhttps://t.co/lilc7zMarv

— ReserveBankOfIndia (@RBI) February 6, 2022

What Is Monetary Policy Committee?

• MPC is a government-constituted body of the RBI, which is responsible for framing the monetary policy of the country, using the tools like repo rate, reverse repo rate, bank rates etc.
• The MPC has six members, three nominated by the government and three members of RBI. The RBI Governor is the ex-officio chairperson of the committee.
• MPC usually meets six times a year and has and each member has a tenure of four years.
• MPC decisions are taken by voting, where a simple majority (4 out of 6) is necessary for a decision to be passed.
• RBI Act, 1934 empowers the RBI to take Monetary Policy Decisions.

Why Is MPC Important?

• The rates fixed by the MPC determine the interest rates on deposit accounts as well as loans in the country.
• The higher interest rates are generally mean that the RBI wants people to spend less, this is done to control rising inflation.
• In case of falling inflation, the interest rates are decreased by the RBI to let people spend more money. This stance is being followed by RBI, and other central banks across the globe, since the inception of the Covid-19 pandemic.
• Now, after Budget 2022, MPC is meeting for the first time and it is important to see what stance does the RBI take now.
• The interest rates also have a bearing on the Indian share markets. During periods of higher interest rates, investors like to keep their money in the banks because it offers security and assured return.
• According to various media reports, experts, including RBI Governor, have been reiterating that Indian share markets are experiencing a big bubble. If the bank rates are revised upwards, it will increase the chances of the bubble bursting.