The Reserve Bank of India is India’s central bank and regulatory body responsible for regulation of the Indian banking system. Owned by the Ministry of Finance of the Government of India, it is responsible for the control, issue and maintaining supply of the Indian rupee. It also manages the country’s main payment systems and works to promote its economic development.
What Are the Primary Objectives of the RBI as Outlined in the Reserve Bank of India Act of 1934?
The primary objectives of the RBI, as outlined in the Reserve Bank of India Act, 1934, include regulating the issuance of banknotes, maintaining monetary stability, operating the currency and credit system to the country’s advantage, and fostering economic growth.
The Reserve Bank of India is the central banking institution in India responsible for formulating and implementing monetary policy, regulating and supervising the banking and financial system, and managing the issuance and circulation of currency. It plays a crucial role in maintaining financial stability not just for the country for the broader, global economy.
MONETORY POLICY OF RBI
It is the process by which the monetory authority of a country, generally central bank controls the supply of money in the economy. The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth. The Monetary Policy Committee is entrusted with the task of fixing the benchmark policy rate (repo rate) required to maintain inflation within the specified target level. As per the provisions of the RBI Act, three of the six Members of the Monetary Policy Committee will be from the RBI and the other three Members will be appointed by the Central Government.
Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central Government by notification in the Official Gazette. The first such MPC was constituted on September 29, 2016. The present MPC members, as notified by the Central Government in the Official Gazette of October 5, 2020, are as under:
- Governor of the Reserve Bank of India—Chairperson, ex officio;
- Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy—Member, ex officio;
- One officer of the Reserve Bank of India to be nominated by the Central Board—Member, ex officio;
- Dr. Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi — Member;
- Shri Saugata Bhattacharya, Economist — Member; and
- Prof. Ram Singh, Director, Delhi School of Economics, University of Delhi —Member
- (Members referred to at 4 to 6 above, will hold office for a period of four years or until further orders, whichever is earlier)
- The MPC determines the policy repo rate required to achieve the inflation target.
- 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.
- Each Member of the Monetary Policy Committee writes a statement specifying the reasons for voting in favour of, or against the proposed resolution.
REPO RATE
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price.
