Market Stabilization Scheme is the arrangement for large flow of foreign exchange through borrowings or grants received by Government of India, which would be put is special accounts and released periodically as required by government.
– Launched in Feb 2004
– Issued as TBs and dated securities
Effective from 1 April 2015, RBI conducts bi monthly Monetary Policy review exercise and makes adjustments in the policy rates.
Before the implementation of the recommendations of the Dr. Urjit Patel Committee on Monetary Policy, RBI was following a multiple indicator approach. The Committee recommended that RBI’s policy rate should target control of inflation based on CPI and also recommended an inflation rate of 4% as ideal for India and a range of 4 +/- 2% as the range for RBI’s policy rates.
For the first time in India, as is the practice in several countries, RBI entered into an agreement with Government of India in February 2015, RBI should control inflation, through monetary policy, below 6% by January 2016 and below 6% from 1 April 2016 and all subsequent financial years. This approach is known as inflation targeting of Monetary Policy. A committee to supervise the implementation was also formed
– The provisions of amended RBI Act regarding constitution of MPC was brought into force on June 27, 2016
– The six-member Committee — tasked with bringing “value and transparency to monetary policy decisions” — will comprise three members from RBI, including the Governor, who will be the ex-officio chairperson, a Deputy Governor and one officer of the central bank.
– The other three members will be appointed by the Centre on the recommendations of a search-cum-selection committee to be headed by the Cabinet Secretary.
– “These three members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of four years and shall not be eligible for re-appointment,” according to the statement.
– The Committee is to meet four times a year and make public its decisions following each meeting.