Monetary Policy Instruments — Policy Reforms

Entry	Year	Description	Impact
Finance Act, 2016 (amendment to RBI Act, 1934)	2016	This landmark amendment introduced Section 45ZA to the RBI Act, 1934, establishing the Monetary Policy Committee (MPC). The MPC is a six-member body (three from RBI, three external) tasked with determining the policy rate (Repo Rate) to achieve the inflation target set by the government. This institutionalized the inflation targeting framework in India.	Shifted the responsibility of setting the policy rate from the RBI Governor to a collective body, enhancing transparency, accountability, and credibility of monetary policy decisions. It formalized the Repo Rate as the primary operating instrument for achieving price stability.
RBI (Amendment) Act, 2006	2006	This amendment removed the floor and ceiling limits for the Cash Reserve Ratio (CRR) that the RBI could prescribe. Previously, CRR had statutory limits (3% to 20%).	Provided the RBI with greater flexibility in using CRR as a monetary policy instrument, allowing it to adjust the ratio as per liquidity conditions without statutory constraints. This enhanced the RBI's ability to manage liquidity more effectively.