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FinMin, RBI to decide on monetary policy framework by Dec end

By PTI
07 October, 2014

The Finance Ministry and the RBI will finalise a new monetary policy framework by December end under which the central bank will pursue the retail inflation target to be decided by the government.

According to official sources, the internal work for the new monetary policy framework is in advanced stages and the government will have to take a final view on it in consultation with the RBI.

Under the new framework, the interest rate will be decided by a monetary policy committee with a view to ensure that inflation remains within the targeted levels.

Finance Minister Arun Jaitley had in his Budget speech on July 10 said: “It is also essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy. Government will, in close consultation with the RBI, put in place such a framework”.

The new framework, sources said, have to be decided by December end so that the initiatives could be included in the Action Taken Report which has to be tabled in Parliament by January 15.

On fixing a target for inflation, sources said: “What is the appropriate inflation target for India cannot be decided by the RBI, it has to be decided by the government. Government may decide in consultation with Parliament, Government may decide on its own”.

The decision to develop a monetary policy framework follows from the recommendation by the Urjit Patel Committee which had suggested that the RBI should target to bring down retail inflation to 8 per cent by January 2015 and 6 per cent by January 2016.

RBI Governor Raghuram Rajan has been pursuing hawkish monetary policy stance to keep inflation under check. It has not reduced rates in four consecutive policies despite pressure from the industry and the Finance Ministry to cut rates to boost growth.


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FinMin, RBI to decide on monetary policy framework by Dec end

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