Mumbai: Strongly asserting its autonomy, the six-member Monetary Policy Committee (MPC) tasked with setting RBI's interest rates unanimously declined an invite for a meeting with finance ministry officials ahead of the policy.
"The meeting did not take place. All the MPC members declined the request of the finance ministry for that meeting," RBI Governor Urjit Patel said, when asked about reports of such a meeting and if it compromises the autonomy of the central bank and the panel.
In a controversial move ahead of the second bi-monthly review of the monetary policy announced today, the finance ministry had scheduled a meeting with the rate setting panel. Relations between the Mint Road and the North Block have always been frosty, with the former's decisions on interest rates being the biggest point of difference.
Defending the idea of scheduled meeting with MPC, Chief Economic Adviser Arvind Subramanian said it had nothing to do with undermining the institutional integrity of the interest rate setting panel but for sharing of inputs. "It has nothing to do with meeting, it's about technical assessment and I think more discussions we all have, the more government can provide inputs," Subramanian said.
The government has gone public multiple times on its expectations from the RBI's policies ahead of reviews. Boosting growth is the dominant expectation for the government, but the RBI is guided by inflation worries in its actions.
The MPC was formed in September last year to decide on the rates and the stance of the policy, with a clear mandate to get headline inflation down to 4 per cent level.
The MPC has three members from RBI, including the Governor, Deputy Governor in charge of monetary policy department Viral Acharya and executive director Michael Patra, while three are from outside. The external members include Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad.
Finance ministry officials were scheduled to meet the MPC's external members on June 1, and the RBI's members and its chief on the following day. The ministry was to be represented by Economic Affairs Secretary, Chief Economic Adviser Arvind Subramanian and Principal Economic Adviser Sanjeev Sanyal.
The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016. The MPC works with regard to setting interest rates to meet the inflation target fixed by the government. Under the agreement with the government, the RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a 'glide path' to achieve the median mark.
As per the norms for the MPC, each member shall have one vote and in case of a tie, the RBI Governor shall have a casting vote. The MPC voted 5:1 in favour of the decision on holding the status quo at the meet which ended today. Members of the MPC are appointed for a period of four years and shall not be eligible for reappointment.
