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Raghuram Rajan wants monetary policy committee in place before he leaves

02 Aug 2016 Evaluate

The Reserve Bank of India (RBI) governor Raghuram Rajan wants the government to quickly put in place a monetary policy committee (MPC) before he leaves RBI. The MPC would lead to more institutionalised decision-making process, rather than the current system which gives the governor wide discretion in setting interest rates and changes to other policy settings, and also keep the focus on controlling inflation.

The RBI Governor Rajan, whose three-year term ends in September said that “I think this creates an institution which many other countries have adopted, which India was slow to adopt but which will stabilise expectations about inflation in the future.” He added that “It is important that this framework is in place. I’m working very hard to get this in place before I leave.” Though, the government has not set a specific timeframe for the formation of a monetary policy panel.

Last year RBI and the government agreed to form a policy-making panel and the government is expected to announce the final composition of the committee sometime this year. The committee will be made up of three members from the RBI, including the governor, and three selected by the government. The governor will chair the committee and his vote will act as a tie-breaker.

The RBI has cut its benchmark interest rate by 150 basis points since January 2015, including a 25 bps cut in April. But it has held rates due to worries about rising inflation since then, and is widely expected to keep it on hold at a review in its next policy review.

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