The government is likely to finalise the names of three members to the Monetary Policy Committee within a month and the MPC is likely to decide on interest rate at the next review, a top official said today.
“I would expect within a month and so, it (final decision on MPC members) will happen… Next monetary policy should to be decided by MPC,” said the Finance Ministry official. The next bi-monthly RBI policy, scheduled on October 4.
“A search-cum-selection committee headed by the Cabinet Secretary with RBI Governor and Economic Affairs Secretary has met already. It is again meeting very shortly. The committee has discussed various names, it (names) will go to the Appointments Committee of the Cabinet (ACC),” he added.
MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Bill 2016. Under this new system, the RBI Governor is ex-officio Chairperson.
Besides, RBI Deputy Governor in-charge of the monetary policy and an office bearer of the Central bank are the other two members in the committee.
Under the agreement with the government, RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a ‘glide path’ to achieving the median mark. The Governor will have a casting vote once the country shifts to the panel system.
“The MPC is a fundamental institutional reform which modernises our monetary policy framework and builds a strong platform for a strong and sustainable growth,” former RBI Governor Raghuram Rajan had said. Its collateral benefits besides lower inflation will include stable currency and higher real interest rates, he had added.
RBI has nominated executive director Michael Patra to be its nominee on it, in addition to the Governor and the Deputy Governor in-charge of the monetary policy department. As per the norms for MPC, each member shall have one vote and in case of a tie, the RBI Governor will have a casting vote. Presently, the Governor has over-riding powers to accept or reject the recommendation of RBI’s panel on monetary policy.
Members of the MPC will be appointed for a period of four years and will not be eligible for reappointment. The idea of setting up an MPC was mooted by an RBI- appointed committee led by Urjit Patel in February 2014, who was Deputy Governor at that time.
Patel has taken over as the new RBI Governor this week.