RBI Governor Shaktikanta Das Says Reviewing Monetary Policy Framework
Shaktikanta Das, governor of the Reserve Bank of India (RBI), speaks during the Bloomberg India Economic Forum in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)  

RBI Governor Shaktikanta Das Says Reviewing Monetary Policy Framework


The Reserve Bank of India is reviewing the country’s monetary policy framework focused on retail inflation-targeting and plans to conduct in June consultations with stakeholders, including the government, regarding its effectiveness.

That’s according to Shaktikanta Das, governor of India’s banking regulator.

In a bid to keep inflation in check, the government had in 2016 set up Monetary Policy Committee headed by the RBI governor entrusted with the task of fixing the repo rate.

The six-member panel, which had its first meeting in Oct. 2016, was given the mandate to maintain annual inflation at 4 percent until Mar. 31, 2021, with an upper tolerance of 6 percent and a lower tolerance of 2 percent.

"The monetary policy framework is in operation for three-and-a-half years. We have initiated a process of internal review of how the monetary policy framework has worked," Das told Press Trust of India in an interview.

"We have commenced an internal review of the working of the monetary policy framework. Going forward, by the middle of the current calendar year, that's by June or so, we will be holding a round table with all analysts and experts and other stakeholders to do further consultations including the government at the appropriate time," he said.

Obviously, RBI has to interact with the government because the framework is a part of the law, Das said. "So, naturally the government has to take a view."

With regard to monetary policy transmission, the governor said it is steadily improving and is expected to improve further. "Transmission is improving. If you see it was 49 basis points for new loans in the December MPC. In February MPC, it has gone up to 69 basis points. So, it is steadily improving," he said.

On Feb. 6, the six member-Monetary Policy Committee headed by Das, for the second meeting in a row, kept repo rate unchanged at 5.15 percent with an accommodative policy stance—implying it was biased in favour of cutting rate to boost growth.

Prior to the status quo on rates in December, the MPC cut repo rates five consecutive times, resulting in a cumulative 135 basis point reduction in the benchmark.

On RBI aligning its financial accounting year with that of the government, Das said the current financial year will end in June, and the next fiscal starting July would end on March 31. "So, the current year will go on till June. It will have 12 months. Next accounting year will start on July 1 and end on March 31," he said.

Also Read: Monetary Policy: Das’ Draghi Encore Comes With Risks

The central bank, therefore, would prepare a truncated balance sheet for a period of nine months (from July 2020 to March 2021). The next full fiscal year of the RBI will start from April 1, 2021.

The RBI, which was established in April 1935, used to follow January-December as its accounting year before it was changed to July-June in March 1940.

The change in accounting year is in line with the Bimal Jalan Committee on Economic Capital Framework's suggestion of a change in RBI's accounting year to April-March from 2020-21. It said RBI would be able to provide better estimates of projected surplus transfers to the government for the financial year for budgeting purposes.

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