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Reserve Bank of India Act, 1934 – Part-VIII – Section 45Z to 45ZO

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the eighth article in the series. 

Chapter IIIF – Monetary Policy

Section 45Z – Provisions of this Chapter to override other provisions of Act

The provisions of Chapter IIIF to override any other provisions of this Act.

Section 45ZA – Inflation target

In consultation with RBI, the Central Government shall determine the inflation target in terms of the Consumer Price Index, once in every 5 years.

Section 45ZB – Constitution of Monetary Policy Committee

The Central Government may constitute a committee to be called the Monetary Policy Committee (MPC) of RBI. 

MPC shall consist of the following – 

  1. Governor of RBI (chairperson)
  2. Deputy Governor of RBI, in-charge of monetary policy (member)
  3. One officer of RBI nominated by the Central Board (member)
  4. Three persons appointed by the Central Government (members)

MPC shall determine the Policy Rate required to achieve the inflation target.

The decision of MPC shall be binding on RBI.

Section 45ZC – Eligibility and selection of Members appointed by Central Government

The members of MPC shall be appointed by the Central Government from amongst persons of ability, integrity and standing, having knowledge and experience in the field of economics / banking / finance / monetary policy.

A person shall not be appointed as a member of MPC, if such person –

  1. Has completed the age of 70 years on the date of appointment as member.
  2. Is a member of any Board / Committee of RBI.
  3. Is an employee of RBI.
  4. Is a public servant as defined under section 21 of the Indian Penal Code.
  5. Is a Member of Parliament or any State Legislature.
  6. Has been at any time, adjudged as an insolvent.
  7. Has been convicted of an offence punishable with imprisonment for 180 days or more.
  8. Is physically / mentally incapable of discharging the duties of a member of MPC.
  9. Has a material conflict of interest with RBI and is unable to resolve such conflict.

The 3 members of MPC shall be appointed by the Central Government on the recommendations of Search-cum-Selection Committee consisting of the following –

  1. Cabinet secretary (chairperson)
  2. Governor of RBI / his representative Deputy Governor (member)
  3. Secretary, Department of Economic Affairs (member) 
  4. Three experts from the field of economics / banking / finance / monetary policy, nominated by the Central Government (members)

Section 45ZD – Terms and conditions of appointment of Members of Monetary Policy Committee

  • Term of MPC members – 4 years, shall not be eligible for reappointment.
  • Terms and conditions of appointment of MPC members – as prescribed by the Central Government.
  • Remuneration and allowances payable to MPC members – as specified by the Central Board.
  • A member may resign from MPC by giving a notice of not less than 6 weeks to the Central Government. 

Section 45ZE – Removal of Members of Monetary Policy Committee

The Central Government may remove from office any member of MPC, who – 

  1. Is, or at any time has been, adjudged as an insolvent.
  2. Has become physically / mentally incapable of acting as a member.
  3. Has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude.
  4. Has failed to adequately disclose any material conflict of interest at the time of his appointment.
  5. Does not attend 3 consecutive meetings of MPC without obtaining prior leave.
  6. Has acquired financial / other interest which is likely to affect his functions as a member.
  7. Has acquired any post as a – Member of any Board / Committee of RBI, employee of RBI, public servant as defined under section 21 of the Indian Penal Code, Member of Parliament or any State Legislature.
  8. Has abused his position.

Section 45ZF – Vacancies etc., not to invalidate proceedings of Monetary Policy Committee

The following shall not invalidate the proceeding of MPC –

  1. Any vacancy in, or any defect in the constitution of MPC.
  2. Any defect in the appointment of a person acting as a member of MPC.
  3. Any irregularity in the procedure of MPC not affecting the merits of the case.

Section 45ZG – Secretary to Monetary Policy Committee

RBI shall appoint a secretary to MPC, who shall perform functions as specified by the Central Board.

Section 45ZH – Information for Monetary Policy Committee Members

  • RBI shall provide all information to the members of MPC that may be relevant to achieve the inflation target.
  • Any member of MPC may request RBI for additional information. RBI shall provide the information, unless –

    1. The information pertains to an entity / person and is not publicly available.
    2. The information allows an entity / person to be identified and the information is not publicly available.

  • Any information provided by RBI to a member of MPC shall be provided to all the members of MPC.

Section 45ZI – Meetings of Monetary Policy Committee

  • RBI shall organize at least 4 meetings of MPC in a year.
  • The meeting schedule of MPC for a year shall be published by RBI at least one week before the first meeting in that year.
  • The meeting schedule may be changed only –
    • By a decision taken at a prior MPC meeting.
    • If, in the opinion of the Governor, an additional meeting is required.
    • A meeting is required to be rescheduled due to administrative exigencies. 
  • Any change in meeting schedule shall be published by RBI.
  • Quorum for MPC meeting – 4 members (at least one of whom shall be the Governor and, in his absence, the Deputy Governor who is the member of MPC).
  • The MPC meeting shall be presided over by the Governor, and in his absence, by the Deputy Governor who is a member of MPC.
  • Each member of MPC shall have one vote.
  • All questions before MPC meeting shall be decided by a majority of votes by the members present and voting, and in the event of an equality of votes, the Governor shall have a second / casting vote.
  • The vote of each member of MPC for a proposed resolution shall be recorded.
  • Each Member of MPC shall write a statement specifying the reasons for voting in favour of, or against the proposed resolution.
  • The procedure, conduct, code of confidentiality and any other incidental matter for the functioning of MPC shall be as specified by the Central Board. 
  • The proceeding of MPC shall be confidential.

Section 45ZJ – Steps to be taken to implement decisions of Monetary Policy Committee

  • RBI shall publish a document explaining the steps to be taken by it to implement the decisions of MPC.
  • The particulars to be included in such document and the frequency of publications of such document shall be as specified by the Central Board.

Section 45ZK – Publication of decisions

RBI shall publish the resolution adopted by MPC.

Section 45ZL – Publication of proceedings of meeting of Monetary Policy Committee

On 14th day after every MPC meeting, RBI shall publish the minutes of the meeting which shall include the following –

  1. Resolution adopted at MPC meeting.
  2. Vote of each member of MPC on resolutions adopted in the meeting.
  3. Statement of each member of MPC on resolutions adopted in the meeting.

Section 45ZM – Monetary Policy Report

RBI shall publish Monetary Policy Report once in every 6 months explaining – 

  • Sources of inflation.
  • Forecast of inflation for 6-18 months from the date of publication of the document.

Section 45ZN – Failure to maintain inflation target

Where RBI fails to meet the inflation target, it shall report to the Central Government – 

  1. Reasons for failure to achieve the inflation target.
  2. Remedial action proposed to be taken by RBI.
  3. Estimated time to achieve the inflation target.

Section 45ZO – Power to make rules

The Central Government may make rules for the purpose of carrying out the provisions of Chapter IIIF.


References

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act


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