Central Bank comfortable with existing interest rates: RBI Governor Raghuram Rajan

With regard to the foreign exchange rate for rupee, the RBI Governor said it is at the right place at the moment.

New Delhi ministers and economists alike are hoping for further monetary easing from the Reserve Bank of India (RBI) but in an exclusive interview with CNBC, central bank governor Raghuram Rajan hinted that any imminent rate cuts were unlikely. Rajan has said the final call on the timing of implementing MPC will be taken by the Finance Ministry but he is not opposed to the governor’s veto powers being taken away.

Apart from the RBI “chairperson”, the monetary policy committee would consist of five members – an executive member of the Reserve Bank Board, an employee of the RBI nominated by the RBI “chairperson” and others appointed by the government.

The government has proposed to set up MPC, comprising representatives from the finance ministry and the RBI, to decide on interest rates.

At the same time, they agreed on issues such as establishing a monetary policy committee to set interest rates as well as the need for “tolerance” of views in political debates. The RBI wishes to contain consumer price inflation (CPI) within 6 percent by January.

The current practice is that the RBI governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy.

The proposed Bill to amend RBI Act will aim at making India’s rate-setting body similar to the global bests-Federal Open Market Committee (FOMC) of the US Federal Reserve or the Monetary Policy Committee of the Bank of England.

Like the Fed and Bank of England, the RBI do make public the minutes of the meeting-how many members voted for rate cuts or hikes and by how much.