New monetary policy committee likely soon

The government is expected to soon announce both, members of the monetary policy committee, as well as the successor to RBI Governor Raghuram Rajan, according to sources.

Mr. Rajan had said that he will not continue as Governor when his term ends on September 4 as he wanted to go back to academia.

The government is working overtime to counter the fallout arising from sudden exit announcement of Reserve Bank of India (RBI) Governor, Raghuram Rajan.

Both the prime minister’s office and the finance ministry have gone on a war footing to search for a successor, bankers who are aware of the developments told The Hindu . Finance Minister Arun Jaitley has already said that the next central bank Governor will be announced shortly.

Sources said that the new Governor would be announced well before the next monetary policy announcement scheduled on August 9.

Sources also said the government is likely to appoint the new Governor as officer on special duty (OSD) at the RBI, till the time the person takes charge – a precedent that was set by the previous United Progressive Alliance (UPA) government while appointing Mr. Rajan in 2013. In 2013, Mr. Rajan was appointed as OSD about a month before taking charge as RBI governor.

Policy panel

“It is unlikely that the (current) Governor will have a full say in deciding the monetary policy now that he has made it public that he does not want to continue. New Delhi will have a greater say,” said a senior banker.

What is also certain is that the government will announce the formation of the monetary policy committee shortly, multiple sources said.

The Finance Bill, passed by the Parliament, has paved the way for the formation of such a panel.

The monetary policy committee is to have have six members — three of them, including RBI Governor, who will head the panel, will be from the RBI while the remaining three will be external members. RBI Governor will have the casting vote in case of an undecided vote.

The formation of the monetary policy committee was mooted by the Urjit Patel committee which was set up by Mr. Rajan shortly after he took charge as Governor. The committee suggested that monetary policy be rule-based and not discretion-based. Targeting inflation is to be the core objective of the central bank, and it will be answerable to law-makers if it failed to achieve the target, the Patel committee had suggested.

RBI has already moved to an inflation-targeting framework following an agreement signed with the government in 2015.

Mr Rajan, in his farewell mail to his colleagues in the RBI, has in fact highlighted the formation of the monetary policy as one of the unfinished tasks.

“Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed,” Mr. Rajan said in the e-mail.

RBI Governor appointee likely to take charge as OSD before assuming formal duties