The Indian government on Thursday appointed three members on the Monetary Policy Committee (MPC), who along with RBI nominees are likely to set the benchmark interest rate in the upcoming monetary policy review with a view to contain retail inflation at the targeted level of 4 per cent.
The government nominees on MPC headed by RBI Governor Urjit Patel are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad.
RBI nominees are governor, a deputy governor and one more representative from the central bank.
Ghate was part of a five-member technical advisory committee that provided advice on interest rates to the RBI Governor ahead of each policy review.
RBI's fourth bi-monthly monetary policy review for 2016-17 is scheduled on October 4, and interest rate decision is expected to be taken by the panel instead of the current practice of RBI Governor alone.
The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016.
The MPC will work with regard to setting up interest rate to meet the inflation target fixed by the government.
Under the agreement with the government, RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a 'glide path' to achieving the median mark.
As per the norms for MPC, each member shall have one vote and in case of a tie, the RBI Governor shall have a casting vote. Presently, the Governor has over-riding powers to accept or reject the recommendation of RBI's panel on monetary policy.
The Governor will have a casting vote once the country shifts to the panel system.
Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.
The idea of setting up an MPC was mooted by an RBI-appointed committee led by then deputy governor Urjit Patel in February 2014. Though it had recommended a five-member committee where three members would be from RBI and two external members would be appointed by the RBI governor and the deputy governor in-charge.
It was also suggested that the governor should have a casting vote in case of a tie.
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