RBI Governor Raghuram Rajan has said the central bank has finished negotiations with the Finance Ministry on the vexed issue of the monetary policy committee, but declined to give details, saying the government will table it before Parliament through an amendment.
“It is completed. Everything is done, certainly the discussions between us and the government,” Rajan told reporters from wire agencies last week when asked about the progress on MPC.
He added that now the government has to decide on the timing of tabling the amendments to the RBI Act before Parliament.
Rajan did not get into the specifics, saying “I think the government does not want to discuss this outside Parliament with due respect for parliamentary procedures”.
He, however, reiterated that all the discussions surrounding issues that have generated a lot of speculation are over. “As far as the discussion of the details goes, I think we are all on board,” he clarified.
In a recent speech, Rajan had said the central bank is looking forward to the amendments to the RBI Act before the migration to the inflation-targeting framework.
“We have absolutely no intent of departing from the inflation framework that has been agreed with the government. We look forward to the government amending the RBI Act to usher in the monetary policy committee, further strengthening the framework,” Rajan had said.
The representation of nominees from the government as well as RBI in the committee, which will set the rates, has been an issue of intense speculation after Rajan said in August that he does not want the veto on rates to be with the governor.
“RBI believes that institutionalising the process of monetary policy formulation is vital, given that the government has given RBI a clear inflation objective,” Rajan had said earlier, hinting that he is completely fine with not having the veto power.
“If we continue to retain the veto, it does not change the situation, it maintains the status quo,” he said, referring to the current practice where the governor can overrule the advice of the technical advisory committee. RBI joined a growing list of central banks in the world with inflation targeting as an explicit objective by signing an agreement with the government last February.
The agreement was signed after a committee headed by Deputy Governor Urjit Patel recommended a shift to this practice.