Open and Transparent Monetary Policy Making

Under the amended RBI Act, the monetary policy making is as under:

➖The MPC is required to meet at least four times in a year.

➖The quorum for the meeting of the MPC is four members.

➖Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.

➖The resolution adopted by the MPC is published after conclusion of every meeting of the MPC in accordance with the provisions of Chapter III F of the Reserve Bank of India Act, 1934.

➖On the 14th day, the minutes of the proceedings of the MPC are published which include:

a. the resolution adopted by the MPC;

b. the vote of each member on the resolution, ascribed to such member; and

c. the statement of each member on the resolution adopted.

➖Once in every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain:

a. the sources of inflation; and

b. the forecast of inflation for 6-18 months ahead.

Legal Framework

Reserve Bank of India Act, 1934 as amended from time to time.

 

📚Objectives of Monetary Policy

The primary objective of central banks is to manage inflation. The second is to reduce unemployment, but only after they have controlled inflation.

The U.S. Federal Reserve, like many other central banks, has specific targets for these objectives. It seeks an unemployment rate below 6.5 percent. The Fed says the natural rate of unemployment is between is between 4.7 percent and 5.8 percent. It wants the core inflation rate to be between 2.0 percent and 2.5 percent. It seeks healthy economic growth. That’s a 2-3 percent annual increase in the nation’s gross domestic product.