October 4 rate to be RBI gov call

RBI governor Urjit Patel may still for the first and last time exclusively take a call on interest rates on October 4 despite the government nominating members to the new Monetary Policy Committee. This is because the three academics nominated by the government to the committee are yet to receive the required vigilance and IB clearance.

Under the new norms, the six-member MPC headed by the RBI governor and with members nominated by both the Centre and the central bank will take decisions on interest rates. Currently, interest rates are decided solely by the RBI governor. After the government nominated its members, there was speculation that the next monetary policy will be decided by the MPC. Officials now say that will be possibly only if the Centre-nominated members get all security clearances before October 4.

The government is, however, keen that the MPC starts to function from October 4. The government’s nominees on the MPC are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, director of the Delhi School of Economics; and Ravindra H. Dholakia, a professor at IIM Ahmedabad.

“Since they are private citizens, inputs of the Intelligence Bureau will have to be taken, besides the mandatory clearance by the Central Vigilance Commission,” said government officials. They will also have to receive a no-objection certificate from the income-tax department, as it is essential.

“We are not sure how fast all these authorities can act and give all the necessary clearances. The next monetary policy review is scheduled for October 4, and the MPC will do that job if all clearances are in place before that. Otherwise Mr Patel will decide on the interest rates,” the officials said.

This will be the first monetary policy review by Mr Patel after he took charge as RBI governor earlier this month, taking over from Dr Raghuram Rajan on September 4.

The RBI’s MPC nominees are the governor, a deputy governor and one more representative from the central bank. As per MPC norms, each member shall have one vote and in case of a tie the RBI governor shall have the casting vote.