Rajan looks to keep veto

Confirms consensus with govt over panel

While confusion still remains on whether the veto power will remain with RBI Governor Raghuram Rajan or not, the governor certainly seems to have taken the middle path when it comes to the issue.

In the post policy meeting, the governor, while indicating that he favoured the veto, also said that he favoured a committee system when it comes to deciding on rates.

“Currently the situation is that the governor has the veto. 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. That is something to keep in mind. But on the rest of the issues, I think why don’t we await the formal announcement,” Rajan told reporters.

Finance Secretary Rajiv Mehrishi had on Monday said that the government is not looking at trimming the central bank’s powers. “The Indian Financial Code (IFC) report is still to be considered by the government as a discussion paper. So from there, to jump to a conclusion that some curtailment of the power of the RBI has been made or the government has decided to do so would be incorrect,” Mehrishi had said.

While favouring a committee system on rates, Rajan pointed out three virtues of having the same.

“Going forward there are at least three virtues of taking the decision away from the governor and giving it to a committee. First, a committee can represent different viewpoints and studies show that its decisions are typically better than individuals.

Second, spreading the responsibility for the decision can reduce the internal and external pressure that falls on an individual. Third, the committee will ensure monetary policy continuity when any single member including the governor changes. So we have been enthusiastic supporters of the idea of a committee,” he said.

Since the finance minister’s budget announcement that such a monetary policy committee would be formed, we have been engaged in dialogue with the government.

From the RBI’s side, we wanted to ensure that the structure should ensure continuity in policy as the market attempts to understand the voting patterns of the new monetary policy committee members. I can reiterate the finance secretary’s comments on Monday that the government and RBI have reached a broad consensus on what such a committee should look like and what the powers of the governor should be, Rajan added.