Raghuram Rajan unsure if Monetary Policy Committee will take a call on interest rates in August.
The government has initiated a process to set up a Monetary Policy Committee (MPC) composed of six voting members: three from Reserve Bank of India and three government-appointed.
Given the process is ongoing, RBI Chief, Raghuram Rajan is unsure about setting interest rates in central bank’s next policy review on August 9.
Process of setting up the committee
The first step includes establishing the selection committee. Secondly, the selectiob committee will recommend the three government-appointed MPC members. Finally, the government, after consulting with the RBI, have to set the inflation target for the next 5 years and notify through the official gazette.
The selection committee will include the Cabinet secretary, the RBI governor, the secretary of the Department of Economic Affairs and three experts nominated by the central government.
The MPC will comprise of three RBI voting members and three government-appointed voting members. The government-appointed members will have a background of economics, banking, finance or monetary policy.
The MPC members will hold office for 4 years with a condition of no re-appointment.
In the monetary policy framework agreement signed by the government and RBI in February 2015, the inflation target after March 2017 was set at 4 per cent with a band of 2 per cent more or less.
Whether the same target will be retained or changed will be an important signal for the government’s inflation tolerance, said a Nomura report.