Plans to set up a monetary policy committee (MPC) under the Reserve Bank of India (RBI), which will be empowered to set interest rates, has entered the final leg. The finance ministry on Friday said that it has moved a draft Cabinet note seeking comments from all stakeholders including other ministries.
The details of the agreement are not known but indications are that the RBI would continue to have a say in decisions relating to interest rates.
While the government and RBI have managed to iron out their differences on the proposed MPC, in August the finance ministry found itself amid a raging controversy when the Financial Sector Legislative Reforms Commission put up a report seeking to take away RBI governor’s overriding powers on interest rate decisions. However, the finance ministry clarified that the report was not final and it just sought comments from stakeholders.
In February, the government and the RBI signed the monetary policy framework agreement with the objective of maintaining price stability along with growth. The RBI would set the policy rate while aiming to keep inflation below 6% by January 2016 and within 4% with a tolerance of 2% for 2016-17 and all subsequent years.
There is speculations that the MPC would comprise of six members. Three of them, including the governor, would be from the central bank, while the other three would appointed by the government. In addition, there would be a finance ministry nominee who would be part of the deliberations, though he would not have voting rights.