Reserve Bank Governor Raghuram Rajan on Saturday said he was happy about his powers to decide interest rates being shifted to a broader panel, saying the move was in the interest of the economy. A six-member monetary policy committee (MPC), which will include RBI Governor and three nominees of the Government, will set interest rates to bring consumer or CPI inflation to pre-set targets.
“The RBI's inflation-focused monetary framework will be strengthened by the constitution of the monetary policy committee mooted in the Finance Bill,” he said delivering the 1st Ramnath Goenka lecture here. Finance Minister Arun Jaitley in his Budget for 2016-17 announced setting up of MPC by amending the Reserve Bank of India Act, 1934, through the Finance Bill 2016.
“While the RBI Governor will no longer be able to set monetary policy unilaterally, I believe shifting the decision to a committee is in the economy's interest,” he said. The panel, he said, will not only ‘aggregate multiple views better than an individual can, it will offer more continuity, and be less subject to undue pressure.”
Earlier in the day, speaking to reporters after Jaitley addressed the board of RBI about Budget decisions, he praised the composition of the committee saying he was ‘absolutely on board and happy with it’.
Government will nominate three eminent persons as its nominee members to the MPC. The remaining three members would be from RBI with the Governor being the ex officio Chairperson.
Deputy Governor of RBI in charge of the monetary policy will be a member, so will an Executive Director of the Central bank. Each member shall have one vote and in case of a tie, the Governor shall have a second or casting vote.