2025 marks 90 years of RBI’s first Monetary Policy | Current Affairs | Vision IAS
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2025 marks 90 years of RBI’s first Monetary Policy

Posted 01 Apr 2025

2 min read

In 1935, the Reserve Bank of India (RBI) was established and announced its first monetary policy by fixing bank rate and cash reserve ratio. 

About Monetary Policy

  • Refers to the process through which the Central Banks manages the supply of money in the economy 
  • Objective: Price stability, economic growth, financial stability, etc. 
  • Instrument of Monetary Policy
    • Quantitative tools: Repo Rate, Reverse Repo Rate, Statutory Liquidity Ratio, and Marginal Standing Facility. 
    • Qualitative Tools: Moral Suasion, Direct Action, etc. 
  • Types of Monetary Policy: 
    • Contractionary Monetary policy (or Tight monetary policy): It increases interest rates and limits the outstanding money supply to decrease inflation, etc. 
    • Expansionary Monetary Policy: It decreases interest rates and increases money supply which results in increase in borrowings and consumer spending.

Current Monetary Policy framework in India

  • Prior to the year 2016, the Governor of RBI was singularly responsible for the formulation of monetary policy.
  • The Finance Act, 2016 amended Reserve Bank of India Act, 1934 to provide for a statutory and institutionalised framework for a Monetary Policy Committee (MPC).
    • Subsequently, flexible inflation targeting (FIT) was formally adopted

About Monetary Policy Committee (MPC)

  • Members: MPC consists of six members-three Members from RBI and three are appointed by the Central Government. 
  • Chairman: RBI governor is the ex officio Chairperson of the committee.
  • Voting: Each MPC member has one vote; in case of a tie, the Governor casts the deciding vote.
  • Tags :
  • Monetary Policy
  • Monetary Policy Committee (MPC)
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