Ø
A new era in monetary policy
formulation is set to start with the Union Finance Ministry releasing the
revised draft of the Indian Financial Code (IFC). It provides for the setting
up of a Monetary Policy Committee (MPC) to debate on monetary affairs and
decide the policy rate. This move is in line with practices in many of the
developing countries where the central banks have pursued the committee
approach to address monetary policy issues. Currently, the Reserve Bank of
India (RBI), the monetary policy regulator, goes by the views of a Technical
Advisory Committee (TAC) on such issues. The TAC comprises officials from the
RBI besides a few external experts. It advises the central banker on the
monetary policy stance based on macro-economic and monetary developments.
However, the RBI Governor has the last word, and the right to veto any decision
of the TAC. The draft IFC, submitted by the Financial Sector Legislative
Reforms Commission (FSLRC) headed by former Supreme Court judge B.N.
Srikrishna, has suggested that the MPC members be appointed after due
consultations between the government and the RBI. It has also recommended that
the government have three nominees in the seven-member MPC. The FSLRC, however,
has recommended veto power for the RBI Governor. The revised draft circulated
for public discussion by the Finance Ministry, however, seeks to vest in the
government the power to nominate four members to the MPC. It proposes that no
veto power be given to the Governor, and that at best he be allowed a casting
vote to use in the event of a tie.
No comments:
Post a Comment