New Delhi: The Centre on Monday notified an amendment to the RBI Act, which will take transfer RBI governor’s powers to decide monetary policy to a six-member panel. The monetary policy council (MPC) will have three members from RBI — governor, deputy governor and an official — and three members appointed by the government among economists or financial experts for a four year term. The RBI governor, who heads the panel, will have a casting vote if case of a tie.
MPC is likely to be in place by next month and the monetary policy review scheduled on August 9 is likely to be done by the committee, said officials. The finance ministry said that the move has been taken with a view to maintain price stability, while keeping in mind the objective of growth. “A committee-based approach will add a lot of value and transparency to monetary policy decisions,” the finance ministry said.
Coupled with inflation mandate from the government, the monetary policy council will institutionalise the country’s monetary policy as the government will set the inflation target for the MPC, which will frame policy to achieve it. The three non-RBI members will be appointed by the Centre, on the recommendations of a search-cum-selection committee, which will be headed by the Cabinet secretary. These three members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of four years and will not be eligible for re-appointment.
The meetings of the MPC will be held at least four times a year and it will publicise its decisions after each such meeting. “The rules governing the procedure for selection of members of monetary policy committee and terms and conditions of their appointment and factors constituting failure to meet inflation target under the MPC framework have also been notified,” said the finance ministry. Currently RBI governor has overriding powers to accept or reject the recommendation of RBI panel.
