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      Question

      The Monetary Policy Committee (MPC) constituted under

      Section 45ZB of the RBI Act, 1934 determines which of the following?
      A The Cash Reserve Ratio and Statutory Liquidity Ratio applicable to all scheduled commercial banks Correct Answer Incorrect Answer
      B The policy repo rate required to achieve the inflation target set by the Central Government Correct Answer Incorrect Answer
      C The foreign exchange reserve management policy and intervention strategy of the RBI Correct Answer Incorrect Answer
      D The licensing criteria for new private sector banks and small finance banks Correct Answer Incorrect Answer

      Solution

      Section 45ZB of the RBI Act, 1934, inserted by the 2016 Amendment, establishes the Monetary Policy Committee (MPC) as a statutory body. The MPC is specifically entrusted with determining the policy repo rate required to achieve the inflation target set by the Central Government in consultation with the RBI. The inflation target (currently 4% with a band of ±2%) is set under Section 45ZA. The MPC does not determine CRR/SLR (those are RBI prerogatives under Sections 42 of RBI Act and 34 of the BR Act), nor does it handle forex management or bank licensing.

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