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 ✓ UPSC's answer
- (b) 1 and 2 only
- (c) 3 only
- (d) 2 and 3 only
Why the answer is (a)
• The MPC, created by the 2016 amendment to the RBI Act (Section 45ZB), fixes the policy repo rate to meet the 4% ± 2% inflation target — statement 1 is correct.
• Statement 2 is wrong: it is a six-member body — the Governor (chair), Deputy Governor in charge of monetary policy, one RBI officer and three external members appointed by the Government for four years; it is not reconstituted yearly.
• Statement 3 is wrong: the RBI Governor chairs it, not the Finance Minister; decisions are by majority with the Governor's casting vote.
• Hence 1 only, option (a).
Why the other options are wrong
- (b) 1 and 2 only
- Statement 2 is wrong: MPC has six members with four-year terms.
- (c) 3 only
- Statement 3 is wrong: the RBI Governor chairs the MPC.
- (d) 2 and 3 only
- Statements 2 and 3 are wrong.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2017, held on 18 June 2017. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.