Rajan should also articulate his views on whether RBI should
have majority representation on the MPC
RBI
Watch Monetary
Policy 2015-16
In the meeting with media, after
the release of the bimonthly monetary policy statement on August 4, the first
question put to Governor Rajan enquired whether the RBI Governor should have
the power of veto or casting vote on the Monetary Policy Committee (MPC), that
is being proposed to replace the solely Governor-determined rate setting
process currently in place in India.
This is what he had to say: “Currently, the situation is the
Governor has the veto, i.e., effectively all advice is only advice; ultimately,
the decision is the Governor’s. So if we continue to retain a veto, it does not
change the current situation, it maintains the status quo. So that is something
to keep in mind.”
Earlier
before opening the conference to questions he took time out to speak
specifically on the MPC. He made it clear that the RBI is in favour of the
committee approach to determining policy and enumerated its many advantages
In an
interview with the Economic Times (August 5, 2015), Rajan had this to say: “ Now, if you undermine
the committee by insisting that the governor has a veto.... there are places
where there is veto for the governor, but it is rarely used. If that's the kind
of veto, then that is not a bad thing, but, then, if the veto gets used often,
that would be no different from the current system.”
It appears that
Rajan is not in favour of the power of veto – certainly not on every occasion
the MPC takes a round of votes. It seems he could be in favour of a veto as an
exception, e.g. once every financial year. Or is this his way of saying the
Governor should have a casting vote?
It is perhaps
best not to speculate. Let’s wait out the Government’s decision on the MPC.
What about
whether the majority of the members of the MPC should be from the RBI? Rajan
should articulate his stand on this point. He will enhance his position by
doing so, just as he has done by articulating his stand on the committee
approach to setting monetary policy.
My views on this are that there should an equal number of members from the RBI and from outside.
The Governor should have an additional vote in the event of a tie.
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