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:

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Question

This question was previously asked in

UPSC Civil Services (Prelims) General Studies Official Paper-I (Held In: 2017)

Answer 1

The correct answer is 1 only.

Key PointsMonetary Policy Committee (MPC):

Role and Responsibility
- Deciding RBI’s Benchmark Interest Rates: The MPC is responsible for setting the RBI’s key rates, such as the Repo Rate, Reverse Repo Rate, Marginal Standing Facility (MSF), and Liquidity Adjustment Facility (LAF).
- Hence, statement 1 is correct.
MPC Membership and Structure
- Size and Composition: The MPC comprises six members—three members nominated by the Government of India and three members from the RBI, not 12.
- Appointment Term: Members are appointed for four years and are not eligible for reappointment.
- Hence, statement 2 is incorrect.
Chairperson of MPC
- RBI Governor as Chairperson: The Governor of the RBI is the ex-officio Chairperson of the MPC, not the Union Finance Minister.
- Hence, statement 3 is incorrect.

Additional Information

Voting Mechanism:
- Each member has one vote, and in the event of a tie, the RBI Governor has a casting vote.
No Veto Power:
- The Governor does not have the authority to veto other members' decisions.
Legal Empowerment:
- The Reserve Bank of India Act, 1934 provides the legal framework for the MPC's functioning and the formulation of monetary policy