Govt notifies MPC to decide interest rates

The Dollar Business Bureau

The government has set the stage for the six-member committee to take over the job of fixing interest rates and notified the new Monetary Policy Committee (MPC) which will conduct its first review on October 4.

“Monetary Policy Committee (MPC) constitution under the Reserve Bank of India (RBI) Act, 1934, notified,” said the finance ministry.

The MPC, which consists of three members from RBI and other three from government, will have a target to keep the inflation at four percent, with a lower and upper tolerance level of two percent.

Last week, the government had nominated three academicians to join the RBI Governor Urjit Patel, deputy governor in charge of monetary policy R Gandhi and RBI executive director Michael Patra on the Committee.

All the six members of the MPC will have a vote each. In case of any draw, the RBI Governor will have a deciding vote on the interest rate as directed by the newly-created framework on inflation. However, he doesn’t have the right to veto a majority decision.

The finance ministry further said that a Committee-based method for deciding on the monetary policy will add considerable value and transparency in the policy decisions.

The Committee would be assigned with the job of setting the benchmark policy rate required to keep inflation within the given target level, it said.

The MPC meetings shall be conducted at least four times in a year and after every meeting, it has to publish the decisions taken in the meeting.

Like the RBI Governor, the 3 members designated by the government are low-profile. While the governor has a term of three years that can be extended by two more years, the MPC members will have a term of four years.