{LONGTERMINVESTORS} Fwd: India: Amendment of RBI Act paves way for MPC

---------- Forwarded message ----------
From: <research@icicibank.com>
Date: Tue, Jun 28, 2016 at 6:36 PM
Subject: India: Amendment of RBI Act paves way for MPC
To: stockdesai@gmail.com

India: Government amendment of the RBI Act (1934) by the Finance Act 2016 paves the way for setting up a monetary policy committee (MPC). This is in line with international experience. A six member MPC with the RBI Governor as the Chairman and three external members will be constituted with the former entitled to a casting vote. The MPC is likely to be formed within the next few months. In addition, fiscal policy and selection of the next RBI Governor will remain in focus in the near term. In a key development, the Government has amended the RBI Act (1934) to provide for "a statutory and institutionalised framework for a Monetary Policy Committee (MPC)". The Finance Bill 2016, provides a detailed structure of the Monetary Policy Committee (MPC). Subsequently, steps for formation of a MPC, a key reform in line with the global trend, are underway. Monetary policy committee – why is it needed? The current structure allows monetary policy decision-making to be undertaken solely by the RBI Governor, assisted by a Technical Advisory Committee with a purely advisory role. A Committee based approach is expected to "add lot of value and transparency to monetary policy decisions". MPC: Outlined structure The MPC structure detailed calls for the setup of a 6 member committee- RBI Governor (chairman), RBI Deputy Governor, one nominated officer of the RBI and three external members. On selection of external members: The external members will be appointed by the Central Government on the recommendations of a Search-cum-Selection Committee from the field of economics or banking or finance or monetary policy. The tenor for office is 4 years with no re-appointment. Voting rule: The majority voting rule (with each member having a single vote) will be followed with the RBI Governor having a casting vote in the event of a tie. Accountability: Minutes of the MPC meeting will be published on the 14th day after every meeting. Further, a detailed Monetary Policy report (with inflation targets for the next 6 to 18 months) will be put out. Failure to meet target: In the event of a failure to meet the inflation target, the Central Bank will provide a detailed note to the Central Government outlining the cause of failure, remedial actions and time-period for the proposed remedial actions. MPC in line with international experience The outline for India's MPC is broadly in tandem with global experience. Comparison of organisational structure with G4 economies suggests that globally there is a committee based approach to take majority decisions with the Chairman having the casting vote in the event of a tie but no veto power. However, a mixed trend is seen in terms of appointment of external members. Inflation targeting regime to be in focus The current regime sets the inflation target at 4% with a band of +/- 2%. The new regime outlines that the Central Government in consultation with RBI, will determine the inflation target (in terms of CPI) once in every 5 years. Consequently, developments on this front will remain key. What to look out for? Recent commentary by economic affairs Secretary, Shaktikanta Das, and media reports point to the setting up of the MPC within the next few months. In addition, the next few months will watch out for the appointment of next RBI Governor (as Governor Rajan's term ends in September) as well as recommendations of the Committee setup for reviewing the FRBM roadmap for the future (due October). Developments on the inflation front will continue to be tracked as markets assess the life of current policy cycle. Please refer to the attached document for a detailed report. Regards, ICICI Bank Contact: Niharika Tripathi (+91-22) 2653-1414 (extn: 6943) niharika.tripathi @icicibank.com ​

--

CA. Rajesh Desai

--
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.