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CS Professional · Banking and Insurance - Laws and Practice · Regulatory Framework of Banks

A student summarises the MPC framework in the RBI Act, 1934 as follows. Which statement is correct?

The MPC determines the Policy Rate required to achieve the inflation target, and its decision is binding on the Bank. It is constituted by the Central Government with six Members, meets at least four times a year, and its proceedings are confidential.

  1. AThe MPC is constituted by the Central Board and has five Members, including two nominated by the Governor
  2. BThe MPC determines the Policy Rate required to achieve the inflation target, and its decision is binding on the BankCorrect
  3. CThe MPC meets at least twice a year, and its proceedings are open to the public
  4. DThe Central Government may overrule an MPC resolution by conveying its view in writing

Explanation

Section 45ZB(3) and (4) provide that the MPC determines the Policy Rate required to achieve the inflation target and that its decision binds the Bank. The Central Government constitutes it by notification, and it has six Members. At least four meetings are required a year, proceedings are confidential, and the Government's written views are only conveyed to the MPC, not overriding it.

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