Government Notifies Appointment Of Monetary Policy Committee

Government has now completed the process of setting up the monetary policy committee

BQ Desk @bqprime

29 Sep 2016, 06:47 PM IST

The Reserve Bank of India Headquarters in New Delhi (Photographer: Kuni Takahashi/Bloomberg)

The government on Thursday notified the appointment of the monetary policy committee (MPC) under the Reserve Bank of India (RBI) Act, 1934.

With this, the formalities of establishing an MPC have been completed, setting the stage for a committee-driven monetary policy framework. Earlier this month, the government had appointed three academicians - Chetan Ghate, Pami Dua and Ravindra Dholakia - as the three external members of the committee. The other three members of the committee will be RBI governor Urjit Patel, deputy governor R Gandhi and executive director Michael Patra.

Under the framework agreement, an inflation target of 4 percent (+/- 2 percent) has been set for the period between August 2016 and March 2021. Retail inflation, the nominal anchor for monetary policy, was at 5.05 percent in August, close to the 5 percent interim target set by the RBI for March 2017.

The Monetary Policy Committee would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. A Committee-based approach for determining the Monetary Policy will add lot of value and transparency to monetary policy decisions. The meetings of the Monetary Policy Committee shall be held at least 4 times a year and it shall publish its decisions after each such meeting.

Government of India Press Release

The RBI’s next monetary policy review is scheduled for October 4. While the central bank has not indicated whether the review would be conducted by the MPC, government officials have suggested that committee members would be involved in the decision.

“Yes, certainly, the MPC has been constituted and it is our expectation and I’m quite sure... Before October 4 the MPC will certainly meet and the committee will give their recommendations, based on which the RBI will take a decision,” said Shaktikanta Das, economic affairs secretary, Government of India on the sidelines of an event on Tuesday.

Separately, the RBI governor met the finance minister in New Delhi on Thursday. While the agenda for the meeting is not known, it is customary for the governor to brief the finance minister ahead of every policy review.