MONETARY POLICYCentral

Section 45ZB of The Reserve Bank of India Act, 1934

1[45ZB. Constitution of Monetary Policy Committee.--(1) The Central Government may, by notification in the Official Gazette, constitute a Committee to be called the Monetary Policy Committee of the Bank.

(2)The Monetary Policy Committee shall consist of the following Members, namely:--
1. (a)the Governor of the Bank--Chairperson, ex officio;
2. (b)Deputy Governor of the Bank, in charge of Monetary Policy--Member, ex officio;
3. (c)one officer of the Bank to be nominated by the Central Board--Member, ex officio; and
4. (d)three persons to be appointed by the Central Government--Members.
(3)The Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target.
(4)The decision of the Monetary Policy Committee shall be binding on the Bank.]

Summary

This section establishes the Monetary Policy Committee, a group of six experts.
The committee includes the Reserve Bank Governor, a Deputy Governor, and one bank officer nominated by the board.
The Central Government appoints the remaining three members to the committee.
The primary job of this committee is to set the Policy Rate, which is the interest rate used to control inflation.
All decisions made by this committee are legally binding on the Reserve Bank.
The Governor of the Bank acts as the Chairperson of the committee.

Practical examples

1Suman is one of the three outside experts appointed by the government to join the committee and vote on whether to raise or lower national interest rates.

2The committee meets and decides to keep the repo rate at six percent to hit the target set by the government, and the Reserve Bank must follow this decision immediately.

FAQ

1. Who is the Chairperson of the Monetary Policy Committee under Section 45ZB of the Reserve Bank of India Act, 1934?

The Governor of the Bank is the ex officio Chairperson under Section 45ZB of the Reserve Bank of India Act, 1934.

2. How many members are on the committee according to Section 45ZB of the Reserve Bank of India Act, 1934?

There are six members: the Governor, a Deputy Governor, one bank officer, and three persons appointed by the government, as per Section 45ZB of the Reserve Bank of India Act, 1934.

3. What is the main function of the committee under Section 45ZB of the Reserve Bank of India Act, 1934?

The committee determines the Policy Rate required to achieve the inflation target under Section 45ZB of the Reserve Bank of India Act, 1934.

4. Are the committee's decisions final under Section 45ZB of the Reserve Bank of India Act, 1934?

Yes, the decisions of the Monetary Policy Committee are binding on the Bank according to Section 45ZB of the Reserve Bank of India Act, 1934.

Test yourself

Q1.Under Section 45ZB of the Reserve Bank of India Act, 1934, how many members of the committee are appointed by the Central Government?

Q2.According to Section 45ZB of the Reserve Bank of India Act, 1934, what must the committee determine?

Q3.In a meeting held under Section 45ZB of the Reserve Bank of India Act, 1934, who presides as the Chairperson?

Q4.Cross-referencing Sections 45ZA and 45ZB of the Reserve Bank of India Act, 1934, what is the committee trying to achieve when it sets the interest rate?

Q5.Under Section 45ZB of the Reserve Bank of India Act, 1934, which of these is a member of the committee?

45ZAPreviousSection 45ZA Inflation target.45ZCNextSection 45ZC Eligibility and selection of Members appointed by Central Government.

←Section 45ZA Section 45ZC→

MONETARY POLICYCentral

Section 45ZB of The Reserve Bank of India Act, 1934

(2)The Monetary Policy Committee shall consist of the following Members, namely:--
1. (a)the Governor of the Bank--Chairperson, ex officio;
2. (b)Deputy Governor of the Bank, in charge of Monetary Policy--Member, ex officio;
3. (c)one officer of the Bank to be nominated by the Central Board--Member, ex officio; and
4. (d)three persons to be appointed by the Central Government--Members.
(3)The Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target.
(4)The decision of the Monetary Policy Committee shall be binding on the Bank.]

Summary

This section establishes the Monetary Policy Committee, a group of six experts.
The committee includes the Reserve Bank Governor, a Deputy Governor, and one bank officer nominated by the board.
The Central Government appoints the remaining three members to the committee.
The primary job of this committee is to set the Policy Rate, which is the interest rate used to control inflation.
All decisions made by this committee are legally binding on the Reserve Bank.
The Governor of the Bank acts as the Chairperson of the committee.