Government, RBI reach consensus on monetary policy committee, says Jayant Sinha

The government and the Reserve Bank have reached a consensus on the structure for the proposed interest-rate setting Monetary Policy Committee (MPC), Minister of State for Finance Jayant Sinha said on Thursday.

"As far as MPC is concerned, we have reached a consensus with RBI. On that, a (Cabinet) note has been prepared. We will have to see when it gets to the Cabinet," he said here.

He did not elaborate on the composition as well as voting rights of the RBI Governor in the MPC, which is to replace the current practice of the Governor deciding on interest rate on advice of the technical advisory committee.

"Ultimately, we have to see we have to place it in Parliament. So, let's go through the process," Sinha said.

The government has proposed to set up the MPC, which will consist of representatives from the Finance Ministry and RBI to decide on interest rate.

The revised draft of the Indian Financial Code (IFC), released by the Finance Ministry last month, had suggested doing away with RBI Governor s veto power and wants a 7-member MPC to take decisions by a majority vote.

Of the seven members, four would be government nominees and the rest from RBI.

Reports suggest the consensus arrived at between the government and RBI is for a six-member committee with equal representation from each side and the Governor having the casting vote.

Under the current system, the Reserve Bank Governor is appointed by the government, but controls monetary policy and has veto power over the existing advisory committee of RBI members and outside appointees that sets rates.