Rajan wants policy panel in place before he leaves

NUSADUA (INDONESIA): India should quickly put in place a monetary policy committee (MPC) to institutionalise decision-making on interest rates and keep the focus

NUSADUA (INDONESIA): India should quickly put in place a monetary policy committee (MPC) to institutionalise decision-making on interest rates and keep the focus on controlling inflation, outgoing Reserve Bank of India (RBI) governor Raghuram Rajan said on Monday. He wants to see a panel established before his three-year term ends in September.

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The government has yet to appoint a replacement for Rajan, a former International Monetary Fund chief economist whose appointment in 2013 had boosted investor confidence in India’s management of its economy.

The RBI and the government agreed last year to form a policymaking panel, and the government is expected to announce the final composition of the committee sometime this year.

“I think this creates an institution which many other countries have adopted, which India was slow to adopt, but which will stabilise expectations about inflation in the future,” Rajan told a conference attended by central bankers in Indonesia. “It is important that this framework is in place. I’m working very hard to get this in place before I leave.”

But the government has not set a specific timeframe for the formation of MPC. Some officials favour its creation only after the new governor takes over.

The committee will be made up of three members from the RBI, including the governor, and three selected by the Centre. The governor will chair the committee and his vote will act as a tie-breaker.

Rajan has championed the change, saying it would lead to a more institutionalised decisionmaking process than the current system, which gives the governor wide discretion in setting interest rates and other policy changes.

The RBI has cut its repo rate — the rate at which banks borrow from the RBI — by 150 basis points since January 2015.