New Delhi: Moving towards new regime of setting up interest rates in the country, Centre on Thursday appointed three members on the Monetary Policy Committee (MPC). These members along with RBI nominees are likely to set the benchmark interest rate in the upcoming monetary policy review with a view to contain retail inflation at the targeted level of 4 per cent.
It represents a marked change to monetary policy, which was previously decided solely by the RBI Governor. RBI's fourth bi-monthly monetary policy review for 2016-17 is scheduled on October 4, and interest rate decision is expected to be taken by the panel. MPC will be headed by RBI Governor Urjit Patel. The government nominees on MPC are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad.
The Appointments Committee of the Cabinet (ACC) cleared the three eminent experts as members on the MPC for a period of four years, a government notice said. RBI nominees are governor, a deputy governor and one more representative from the central bank. Ghate was part of a five-member technical advisory committee that provided advice on interest rates to the RBI Governor ahead of each policy review.
The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016. 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. 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. The Governor will have a casting vote once the country shifts to the panel system. Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.
