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Published on : Jul 28, 2015

According to the reports, the Reserve Bank of India might say no to the structure of the Monetary Policy Committee proposed by the latest version of Indian Financial Code. Though the central bank is in agreement with the government on inflation targeting and establishing a policy committee to set benchmark rates, it is not happy with the structure of the committee. The bank’s views would be based on the recommendations provided by the Urjit Patel Committee. According to people close to the matter, the bank wants to retain RBI governor’s final authority on monetary policy. 

The latest draft of Indian Financial Code nullifies the role of the central bank in deciding the interest rate. The draft further states that 4 out of 7 members in Monetary Policy Committee will be appointed by the government. RBI is expected to push for a 5-member committee as recommended by Urjit Patel panel, with two of the members being outsiders and chosen by the central bank itself. It is noteworthy that any move to dilute RBI’s role may be perceived negatively by the investors. The government has not yet agreed to the new proposal made by the committee. Jayant Sinha, the Minister of State for Finance has stated that the government is considering the draft which is an input into the government’s deliberations. 

The RBI and the government have been trying to agree on the structure of the Monetary Policy Committee. RBI is preferring the structure as recommended by the Patel panel report whereas some in the finance ministry are supporting the recommendations of The Financial Sector Legislative Reforms Commission. Though the latest version of Indian Financial Code has come up on the website of finance ministry, the government has distanced itself from the controversial proposal.