Govt may nominate its 3 monetary policy committee members this month

After appointing Urjit Patel as the next RBI Governor, the government is now expected to finalise the names of three members to the interest rate setting panel MPC in the next few days. The government nominees to the MPC have been shortlisted by a Search-cum-Selection Committee headed by the Cabinet Secretary with RBI Governor and Economic Affairs Secretary and three experts in the field of economics or banking

or finance or monetary policy as its members. The decision is expected in the next few days or may be in the beginning of the next month, sources privy to the development said. The next bi-monthly RBI policy, scheduled on October 4, will be decided by the Monetary Policy Committee (MPC). The 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.

Since Urjit Patel has been elevated as the next RBI Governor, the monetary policy department has to be looked after by any of the three deputy governors till the appointment of the fourth regular Deputy Governor. So, even if the appointment takes time, the MPC can continue the work with regard to setting up interest rate to meet the inflation target fixed by the government.

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," RBI Governor Raghuram Rajan had said while announcing his last policy review earlier this month.

Its collateral benefits besides lower inflation will include stable currency and higher real interest rates, he had said. Rajan, in his last policy review, had said that it will most likely to be the final one done by the Governor as the Monetary Policy Committee (MPC) will take over from the next policy announcement scheduled for October 4.

The government has already started the process of finalising three members for the panel, while the 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 shall 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 shall not be eligible for reappointment. The idea of setting up an MPC was mooted by an RBI-appointed committee led by deputy governor Urjit Patel in February 2014. Though it had recommended a five-member committee where three members would be from RBI and two external members would be appointed by the RBI governor and the deputy governor in-charge.

It was also suggested that the governor should have a casting vote in case of a tie.