Monetary Policy Committee (MPC) constitution under the Reserve Bank of India Act, 1934, has been notified.
The MPC, in which three members are from the RBI and three others from the government, will target to keep inflation at 4 percent with an upper and lower tolerance level of 2 percent.
The government had named three academics to join RBI Governor Urjit Patel, his deputy in charge of monetary policy R Gandhi and central bank executive director Michael Patra on the MPC.
Indian Statistical Institute Professor Chetan Ghate, Delhi School of Economics Director Pami Dua and IIM-Ahmedabad Professor Ravindra Dholakia are also members of MPC.
Each of the six members on the MPC will have one vote.
In the case of a tie, Patel will have a casting vote in deciding on the rate as guided by the newly-established inflation framework.
He, however, would not be able to veto a majority decision.
A Committee-based approach for determining the monetary policy will add lot of value and transparency to monetary policy decisions.
The MPC would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level.
The meetings of the Monetary Policy Committee shall be held at least four times a year and it shall publish its decisions after each such meeting.
Like Patel, the three members nominated by the government on MPC are low-profile.
While Patel has a three year term, which can be extended by another two years, the committee members will serve for a term of four years.
MPC will be guided by the inflation target set by the government last month. It has to ensure consumer inflation stays in the 2-6 percent range.