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Urjit Patel’s selection signals continuity in monetary policy

( 15:00, 22-Aug-16)

he government has announced Urjit Patel as the next governor of the Reserve Bank of India (RBI) for a three-year term. This signals continuity in monetary policy, as Urjit Patel and Raghuram Rajan are on same view on inflation. 

The idea of setting up a Monetary Policy Committee (MPC) was mooted by an RBI-appointed committee led by deputy governor Urjit Patel in February 2014 that suggested the 2% to 6% inflation target range and also recommended that interest rate decisions should be taken by the RBI governor along with a group of members.

The government has already started the process of finalising three members for Monetary Policy Committee, which will fix the benchmark interest rate of the RBI and set inflation targets. The Governor will have a casting vote once the country shifts to the panel system. Three members of the committee will be from the RBI, while three others will be appointed by the government. Those appointments are yet to be made.

Further, the appointment of Urjit Patel indicated that the government wants RBI to maintain inflation on a tight leash and did not want to experiment with a new face from outside the central bank. The government also hinted that the expectations of immediate rate cut will not be possible in near term, as there is no change in the 2% to 6% target.

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