Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? 1. It decides the RBI's benchmark interest rates. 2. It is a 12-member body including the Governor of RBI and is reconstituted every year. 3. It functions under the chairmanship of the Union Finance Minister. Select the correct answer using the code given below:

Only statement 1 is correct, so A is the answer. The MPC, created under the amended RBI Act, 1934 (Section 45ZB, 2016), sets the policy repo rate, which is the benchmark rate for the economy.

• Statement 2 is wrong. The MPC has six members, not twelve: the RBI Governor, the Deputy Governor in charge of monetary policy, one other RBI officer nominated by the Central Board, and three external members appointed by the Government. External members serve a four-year term and the committee is not reconstituted every year.
• Statement 3 is wrong. The MPC is chaired by the RBI Governor, who also holds a casting vote in a tie. The Finance Minister does not chair it; the government's role is limited to appointing external members.

Core concept: the shift from discretionary to rules-based inflation targeting, with the government's target of 4 percent CPI inflation, plus or minus 2 percent, set under the Monetary Policy Framework Agreement (2015). Mains link: GS-3, inflation management and central bank autonomy.

Trap: remembering the MPC's structure loosely from the Governor-led RBI and picking B or D on the strength of statement 2 or 3. Learn the six-member composition and the Governor's chairmanship as fixed facts.