RBI MPC June meeting underway: It's goal, members; everything explained

The RBI MPC is entrusted with the responsibility of monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) convened on Wednesday, June 5, for a three-day meeting to deliberate on the second monetary policy decision for the financial year 2024-25 (FY25). The committee's decision is expected to be announced by RBI governor Shaktikanta Das on Friday.

The RBI MPC is entrusted with the responsibility of monetary policy in India. Its primary objective is maintaining price stability while considering growth. The body was constituted in 2016 and is required to meet at least four times a year.

Importance of RBI MPC

Repo rates have been at 6.5 per cent for over a year now. The RBI last hiked the repo rate to 6.5 per cent in February 2023. The repo rate is understood as the interest rate at which the RBI lends money to commercial banks, which has a direct impact on big-ticket loans like home loans.

When inflation rises, central banks globally respond by increasing the repo rate, thereby tightening borrowing conditions for commercial banks. This leads to a decrease in the money supply in the economy, ultimately helping to curb inflation.

What is India's inflation target?

According to the rules, the Centre, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI) once in five years. In 2016, the Centre set 4 per cent Consumer Price Index (CPI) inflation as its target till March 2021 (with an upper tolerance limit of 6 per cent and a lower tolerance limit of 2 per cent). This target and its tolerance band was retained and will now be the goal till March 2026.

The RBI explains that the failure to maintain the inflation target is understood when the average inflation is beyond the tolerance band for any three consecutive quarters.

Who can become a member of the RBI MPC?

This will be RBI's 49th MPC meeting. The committee has six members: Das, Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra. They have been members since October 2020.

Each member of the MPC has one vote, and in the event of a tie, the governor has a second or casting vote.

Besides the central bank's governor, the committee members include a deputy governor of the RBI (Patra), one officer of the RBI to be nominated by the Central Board (Rajiv Ranjan) and three other economists appointed by the Centre: Goyal, Varma and Bhide.

According to the rules, external members are required to hold the office for four years or until further orders.

How does RBI MPC implement the monetary policy?

In addition to the repo rate, the committee uses several instruments, such as reverse repo rate, cash reserve ratio checks, banks' assets in India, and open market operations (the outright purchase/sale of government securities by the RBI).

Past members of the RBI MPC:

The first meeting of the RBI MPC was held on October 3 and 4, 2016, at the Reserve Bank of India, Mumbai.

The meeting was attended by six members:

1) Dr Chetan Ghate, professor, Indian Statistical Institute

2) Dr Pami Dua, director, Delhi School of Economics

3) Dr Ravindra H. Dholakia, professor, Indian Institute of Management, Ahmedabad

4) Dr Michael Debabrata Patra, the then-executive director

5) R Gandhi, the then deputy governor in charge of monetary policy

6) Dr Urjit R. Patel, the then governor

The third meeting of the RBI MPC held in February 2017 had all past members but one. Dr Viral V Acharya, the then-deputy governor in charge of monetary policy, replaced Gandhi. 

In December 2018, the current RBI Governor Das was appointed for the role, succeeding Urijit Patel. Subsequently, the February 2019 RBI MPC meeting was chaired by Das and attended by all the existing members.

In the August 2019 meeting, Bibhu Prasad Kanungo, the former deputy governor in charge of monetary policy, replaced Acharya as the body's member.

In February 2020, Dr Janak Raj was made the then executive director nominated by the bank on the board, while Patra was elevated to the role of deputy governor in charge of monetary policy.

In the August 2020 meeting, Dr Mridul K. Saggar appeared as the then-executive director on the board. Months later in October, the current three external members were appointed.

In May 2022, the RBI approved Ranjan as the ex-officio member of the committee.