New RBI governor Urjit Patel will have to be on the ball from day 1: He has been given a September 15 deadline to put in place the monetary policy committee (MPC), top sources in the government told HT.
“Urjit Patel will have to hit the ground running. He has to ensure the committee is in place and taking decisions within one month of taking over as the RBI governor,” said an official in the government, who did not wish to be named.
The monetary policy announcement scheduled for October 4 would be the first by this committee.
As deputy governor, Patel had led a committee that mooted the idea of setting up the MPC in February 2014. It was finally set up by amending the Reserve Bank of India Act, 1934, through the Finance Bill 2016. This committee will have three government nominated members along with the RBI deputy governor in charge of monetary policy, and an office member of the central bank.
The RBI governor will be the chairman of this committee. He will have a casting vote in case of a tie. The members of MPC will be appointed for period of four years and cannot be re-appointed.
The government nominees to the MPC have been shortlisted by a search-cum-selection committee headed by the cabinet secretary with the RBI governor (at the time, Raghuram Rajan), the economic affairs secretary and three experts in the field of economics or banking.
The government is expected to finalise its member in the next few days, said the source quoted above.
After he takes over on September 6, Urjit Patel, who was the deputy governor in charge of monetary policy, now having become the governor, has to appoint his replacement to succeed him on the panel.
The government will also have to finish the work of nominating its members by September 15. RBI has already nominated executive director Michael Patra on the MPC.
The work of the MPC is to decide the interest rate that banks can charge keeping in mind the inflation target fixed by the government. Under the agreement with the government, the RBI is committed to anchoring retail inflation at 4% (plus/minus 2%) and has set itself a target of 5% to be achieved by next March.
Raghuram Rajan, in his last bi-monthly monetary policy announcement, had said he hoped the MPC would take charge of the next policy in October. That looks very much on the cards.