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Govt notifies MPC; to decide key rates in Oct 4 review

Hereon, the six-member monetary policy committee will decide the key interest rates

Policy Pulse
Publish Date: Sep 30 2016 3:53PM | Updated Date: Sep 30 2016 5:01PM

Govt notifies MPC; to decide key rates in Oct 4 review

The stage was set for a six-member panel taking over the job of setting the interest rate after the government notified the new Monetary Policy Committee that will hold its first review on October 4.

 

"Monetary Policy Committee (MPC) constitution under the Reserve Bank of India Act, 1934, notified," the finance ministry said.

 

The MPC, in which three members are from the RBI and three others from the government, will target to keep inflation at 4% with an upper and lower tolerance level of 2%.

 

The government, last week, had named three academics to join RBI Governor Urjit Patel, his deputy in charge of monetary policy R Gandhi and central bank executive director Michael Patra on the MPC.

 

Indian Statistical Institute Professor Chetan Ghate, Delhi School of Economics Director Pami Dua and IIM-Ahmedabad Professor Ravindra Dholakia do not yet have vigilance nod in place.

 

Each of the six members on the MPC will have one vote. In the case of a tie, Patel will have a casting vote in deciding on the rate as guided by the newly-established inflation framework. He, however, would not be able to veto a majority decision.

 

"A Committee-based approach for determining the monetary policy will add lot of value and transparency to monetary policy decisions," the finance ministry said.

 

The MPC would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level, it added.

 

The meetings of the Monetary Policy Committee shall be held at least four times a year and it shall publish its decisions after each such meeting.

 

Like Patel, the three members nominated by the government on MPC are low-profile. While Patel has a three year term, which can be extended by another two years, the committee members will serve for a term of four years.

 

While the previous governor Raghuram Rajan was often accused of keeping borrowing costs too high and hurting growth, MPC will be guided by the inflation target set by the government last month. It has to ensure consumer inflation stays in the 2-6% range.