Govt nominates 3 for Monetary Policy Committee

The government today announced the appointment of three members who will join RBI governor Urjit Patel and two senior officials from the bank to form the new Monetary Policy Committee (MPC) that will set RBI's policy interest rate.

The three nominees - Indian Statistical Institute professor Chetan Ghate, Delhi School of Economics director Pami Dua and Ravindra Dholakia of IIM- Ahmedabad - will be the government nominees in the MPC for a term of four years.

Patel, who took over as the new governor of RBI from Raghuram Rajan, will be the first RBI chief to head a monetary policy committee to decide on a policy interest rate.

All are low-profile economists unlike Patel or Rajan and all of them are India-based.

Ghate is already a member of the RBI's five-member technical advisory committee that advises RBI on interest rates. He was also a member of the panel headed by Patel that in 2014 recommended policy changes, including targeting inflation and establishing a panel to decide rates.

Dholakia has worked with Modi when he was chief minister of Gujarat and had sat on committees covering finance matters.

Pami Dua, who heads Delhi School of Economics, however, is a pure academician.

The new external MPC members will serve for a term of four years, "or until further orders, whichever is earlier," according to a statement issued by the department of personnel.

The appointment comes ahead of the nest policy review scheduled for 4 October. It is also not known whether they will be part of the MPC by then.

It is, however, widely expected the coming policy review will be done by the MPC and not by the RBI governor.

The committee will be responsible for ensuring consumer inflation stays within a range of 2 to 6 per cent, a target announced this year in a move to anchor inflation in a country with a history of volatile changes in consumer prices.

Also, the powers of the MPC is yet to be fully stated. Also, it is not known how the MPC's decisions will be linked to RBI's other policy decisions like exchange rate and liquidity in the banking system outside the rate policy.

But some details have yet to be revealed, including whether the panel would weigh in on other central bank decisions such as managing the exchange rate or liquidity in the financial system.