New Delhi ministers and economists alike are hoping for further monetary easing from the Reserve Bank of India (RBI) but in an exclusive interview with CNBC, central bank governor Raghuram Rajan hinted that any imminent rate cuts were unlikely.
Advertisement
Highlighting the benefits of an MPC the governor Rajan said that studies indicate that policies set up by a committee tend to be better that those set by a single person.
This development is perceived as a major move towards financial reforms and aligning the country’s monetary policy framework to global standards.
Referring to the point in time when the United States was in a way in charge of global governance, Rajan said that is a vacuum in global governance and there is no consensus on how to govern the global economy. If we continue to retain the veto power (in MPC), it doesn’t change the current situation.
Once MPC is in place, a few experts fear that political interference in monetary policy will increase.
“Sustained rupee rate can be achieved by bringing down inflation, ” he said.
Rajan and the government have enjoyed a respectful relationship, although there have been differences between the two sides.
The current practice is that the RBI governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy.
According to an earlier proposal, the committee would have had three RBI and four government nominees, including “independent” nominees.
Advertisement
Subramanian interceded, gently pressing Rajan to do more on rate cuts. Later, it worked with RBI for the constitution of the MPC. However, unlike the Fed chair or Bank of England Governor, the RBI Governor has the right to veto-it can take a decision completely different from what the majority of the TAC members recommend.
