Monetary panel may decide rate of interest soon
December 27, 2015, New Delhi, DHNS
Govt mulls over sniping RBI veto right
Days of the veto power used by the Reserve Bank of India governor in deciding the interest rates may be over as the government is contemplating setting up a monetary policy committee (MPC) that will be empowered to set interest rates.
Whether the RBI will continue to have a say in the committee is not yet known, but sources say that the MPC will have six members with three of them appointed by the government. In addition, there will be a finance ministry nominee on the committee, who will be part of the deliberations without voting rights.
According to official sources, the government may bring a proposal in the Budget session for setting up the MPC and subsequent changes in the RBI Act.
Earlier this year, the government found itself amid a raging controversy when the Financial Sector Legislative Reforms Commission put up a report seeking to take away RBI governor’s overriding powers on interest rate decisions.
However, the finance ministry later clarified that the report was not final and it just sought comments from stakeholders.
Casting vote
Prior to that, an internal committee of the RBI had suggested that the governor should have a casting vote in interest rate decisions in case of a tie.
Traditionally, the RBI has been mandated to govern monetary policy, control money supply and inflation in the economy.
Consequently, when inflation rises, RBI tries to curb it by increasing the interest rate and thereby reducing the money supply in circulation.
The government’s inclination, however, is to foster growth in the economy, preferably with the help of lower interest rates. This becomes a bone of contention when the government says that the RBI should lower the interest rate so that economy can gain momentum, while RBI says, the government should better focus on infrastructure development and plugging leakages in service delivery system so that inflation can be brought down and it can enable RBI to reduce the interest rates.
Analysts are apprehensive whether the new MPC composition with more of Centre’s appointees on the committee can handle the complexities of achieving growth without inflation.
No more veto
The government may propose setting up of the MPC in the Budget session
MPC will have six members with three of them appointed by the government
The committee may include a Finance Ministry nominee
Analysts remain apprehensive about the new MPC composition
Whether the RBI will continue to have a say in the committee is not yet known, but sources say that the MPC will have six members with three of them appointed by the government. In addition, there will be a finance ministry nominee on the committee, who will be part of the deliberations without voting rights.
According to official sources, the government may bring a proposal in the Budget session for setting up the MPC and subsequent changes in the RBI Act.
Earlier this year, the government found itself amid a raging controversy when the Financial Sector Legislative Reforms Commission put up a report seeking to take away RBI governor’s overriding powers on interest rate decisions.
However, the finance ministry later clarified that the report was not final and it just sought comments from stakeholders.
Casting vote
Prior to that, an internal committee of the RBI had suggested that the governor should have a casting vote in interest rate decisions in case of a tie.
Traditionally, the RBI has been mandated to govern monetary policy, control money supply and inflation in the economy.
Consequently, when inflation rises, RBI tries to curb it by increasing the interest rate and thereby reducing the money supply in circulation.
The government’s inclination, however, is to foster growth in the economy, preferably with the help of lower interest rates. This becomes a bone of contention when the government says that the RBI should lower the interest rate so that economy can gain momentum, while RBI says, the government should better focus on infrastructure development and plugging leakages in service delivery system so that inflation can be brought down and it can enable RBI to reduce the interest rates.
Analysts are apprehensive whether the new MPC composition with more of Centre’s appointees on the committee can handle the complexities of achieving growth without inflation.
No more veto
The government may propose setting up of the MPC in the Budget session
MPC will have six members with three of them appointed by the government
The committee may include a Finance Ministry nominee
Analysts remain apprehensive about the new MPC composition
0 comments:
Post a Comment