India should have a new monetary policy committee up and running by
the end of September, coinciding with the end of central bank governor
Raghuram Rajan’s current three-year term.
The panel “should be functional in the second quarter of the coming fiscal” year, economic affairs secretary Shaktikanta Das told Bloomberg News by phone on Monday. India’s financial year starts on 1 April.
A bill before India’s Parliament proposes a six-member committee, with three people picked by the central bank and three by the government. The governor’s vote would be decisive in any tied tallies. Lawmakers are expected to vote on the bill when Parliament is in session from 25 April to 13 May.
The panel, which follows the adoption of an inflation target last year, is one of the final pieces in Rajan’s plan to modernize the 80-year-old central bank and put it on par with countries such as the US and the UK Rajan praised the committee’s composition earlier this month, saying he was “absolutely on board and happy with it.”
“We are moving in the right direction and it’s going to be healthy for monetary policy formation as well as for the economy,” Anjali Verma, a Mumbai-based economist at PhillipCapital India Pvt., said by phone. “We will have to see how more representation from the government changes monetary policy. That is the key risk.”
Rajan extension
Verma said she’s not worried as long as Rajan is governor. While the former International Monetary Fund chief economist cut rates four times last year, he has also at times resisted calls from politicians to lower borrowing costs further as he battles inflation that’s still among the highest in Asia.
Prime Minister Narendra Modi’s administration hasn’t said yet whether it plans to extend Rajan’s term. Rajan has also declined to comment on the possibility of an extension when asked about his future.
The bill calls for the central government to set a consumer-price inflation target every five years in consultation with the central bank. Minutes of each meeting, including the votes of each member, will be published within two weeks of a decision.
As recently as the mid-1990s, the Reserve Bank of India reviewed policy twice annually. That expanded to quarterly meetings and then eight per year before Rajan scaled it down to every other month after taking office in September 2013. The bill says the monetary policy committee must meet at least four times a year.
The panel “should be functional in the second quarter of the coming fiscal” year, economic affairs secretary Shaktikanta Das told Bloomberg News by phone on Monday. India’s financial year starts on 1 April.
A bill before India’s Parliament proposes a six-member committee, with three people picked by the central bank and three by the government. The governor’s vote would be decisive in any tied tallies. Lawmakers are expected to vote on the bill when Parliament is in session from 25 April to 13 May.
The panel, which follows the adoption of an inflation target last year, is one of the final pieces in Rajan’s plan to modernize the 80-year-old central bank and put it on par with countries such as the US and the UK Rajan praised the committee’s composition earlier this month, saying he was “absolutely on board and happy with it.”
“We are moving in the right direction and it’s going to be healthy for monetary policy formation as well as for the economy,” Anjali Verma, a Mumbai-based economist at PhillipCapital India Pvt., said by phone. “We will have to see how more representation from the government changes monetary policy. That is the key risk.”
Rajan extension
Verma said she’s not worried as long as Rajan is governor. While the former International Monetary Fund chief economist cut rates four times last year, he has also at times resisted calls from politicians to lower borrowing costs further as he battles inflation that’s still among the highest in Asia.
Prime Minister Narendra Modi’s administration hasn’t said yet whether it plans to extend Rajan’s term. Rajan has also declined to comment on the possibility of an extension when asked about his future.
The bill calls for the central government to set a consumer-price inflation target every five years in consultation with the central bank. Minutes of each meeting, including the votes of each member, will be published within two weeks of a decision.
As recently as the mid-1990s, the Reserve Bank of India reviewed policy twice annually. That expanded to quarterly meetings and then eight per year before Rajan scaled it down to every other month after taking office in September 2013. The bill says the monetary policy committee must meet at least four times a year.
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