The government will initiate the process of nominating three independent directors for Monetary Policy Committee (MPC) after the passage of Finance Bill, 2016, and its notification. The committee, which will fix the benchmark interest rate of the Reserve Bank of India (RBI) and set inflation targets, will have other three members from the central bank.
“Members from Reserve Bank are known that is already mentioned in the Act itself. You have RBI Governor, Deputy Governor and Executive Director. Now from the government side three independent members are to be nominated,” Economic Affairs Secretary Shaktikanta Das said on the sidelines of an event organised by Asian Development Bank (ADB).
The secretary added, “Process to constitute Monetary Policy Committee will be initiated after passage of Finance Bill and its notification as an Act.”
The Finance Bill is awaiting passage in Rajya Sabha after having been passed in Lok Sabha last week.
The government nominees will be selected by a search-cum-selection Committee under Cabinet Secretary with RBI Governor, Economic Affairs Secretary and three experts in the field of economics / banking / finance / monetary policy as its members.
The MPC is being constituted by amending the Reserve Bank of India Act, 1934, through the Finance Bill, 2016. The Bill has proposed a six-member committee, with three members picked by the central bank and three by the government and a casting vote by RBI governor.
Currently, the Governor has overriding powers to accept or reject the recommendation of RBI’s panel on monetary policy.
Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. The committee will meet at least four times in a year and the government may, if it considers necessary, convey its views in writing to the MPC from time to time. When it comes into force, the RBI will publish Monetary Policy Report every six months explaining the sources of inflation and forecasts of inflation for the period between six to 18 months.