The Monetary Policy Committee (MPC) is a statutory body and institutional framework established under the Reserve Bank of India (RBI) Act, 1934. It was created in 2016 following an amendment to the Act via the Finance Act, 2016, based on the recommendations of the Urjit Patel Committee (2014). Its primary mandate is to maintain price stability while keeping the objective of growth in mind.
Under Section 45ZB of the amended RBI Act, the MPC consists of six members: three from the RBI (including the Governor as ex-officio Chairperson, the Deputy Governor in charge of monetary policy, and one officer nominated by the Central Board) and three external members appointed by the Central Government for a four-year term. The committee determines the Policy Repo Rate required to achieve the inflation target, which is set by the Government of India in consultation with the RBI every five years. The current target is 4% with a tolerance band of +/- 2% (2% to 6%), using the Consumer Price Index (CPI) as the anchor.
Decisions are made by a majority vote where each member has one vote. In the event of a tie, the Governor exercises a casting vote. The MPC is required to meet at least four times a year and must publish the Monetary Policy Report every six months to explain inflation sources and forecasts.
For the UPSC exam, the MPC is a core topic under GS Paper III (Indian Economy) and Prelims. It represents India's shift to a Flexible Inflation Targeting (FIT) framework. Related concepts include the Liquidity Adjustment Facility (LAF), Real Interest Rates, and the Urjit Patel Committee report.