DR Ambedkar IAS Academy

Reserve Bank of India

History

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.

Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Preamble

To regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

To have a modern monetary policy framework to meet the challenge of an increasingly complex economy.

To maintain price stability while keeping in mind the objective of growth.

Structure

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The directors are appointed/nominated for a period of four years.

Constitution

Official Directors (central board of directors)

Full-time: Governor and not more than four Deputy Governors

Non-Official Directors

Nominated by Government: ten Directors from various fields and two government Official

Others: four Directors – one each from four local boards (regional)

Main Functions

 Monetary Authority:

It implements and monitors the monetary policy and ensures price stability while keeping in mind the objective of growth.

An amendment to RBI Act, 1934, was made in May 2016, providing the statutory basis for the implementation of the flexible inflation targeting framework. 

Section 45ZB of the amended RBI Act, 1934, also provides for an empowered six-member Monetary Policy Committee (MPC) to be constituted by the Central Government by notification in the Official Gazette

Monetary Policy Committee

It was created in 2016.

It was created to bring transparency and accountability in deciding monetary policy.

MPC determines the policy interest rate required to achieve the inflation target.

Committee comprises of six members where Governor RBI acts as an ex-officio chairman. Three members are from RBI and three are selected by government.

Inflation target is to be set once in a five year. It is set by the Government of India, in consultation with the Reserve Bank.

Current inflation target is pegged at 4% with -2/+2 tolerance till March 31, 2021.

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