Background: Monetary Policy Committee (MPC), RBI, monetary policy, Inflation, Consumer Price Index (CPI), Consumer price inflation.
- The Centre named three academics trained in economics as the external appointees on the monetary policy committee that will work with the RBI’s three members to decide interest rates.
- The three external members (Pami Dua, Chetan Ghate and Ravindra Dholakia) will have a fixed four year term, which is non-renewable.
- The RBI will set interest rates according to the majority view of the six-member MPC, with the Governor having the casting vote in case of a tie.
- While the Centre did not specify if the newly constituted monetary panel will decide interest rates at the RBI’s next policy review (scheduled for October 4), analysts speculated that the MPC may start work straightaway.
- The MPC will be responsible for ensuring inflation based on the Consumer Price Index is contained within a range of 2 percent to 6 percent, a target announced as part of the new monetary policy framework agreed to by the Centre and the RBI.
- The three new external members of the MPC are low-key academics, who are expected to help provide independent external economic inputs for policy formulation.