More independence a prerequisite for policy committee: Subbarao

RBI one of the few major central banks where monetary policy decisions rest in the hands of the governor, as opposed to a committee

India’s central bank needs greater independence before it can adopt a monetary policy committee structure, Governor Duvvuri Subbarao said on Monday.  

The Reserve Bank of India (RBI) is one of the few major central banks where monetary policy decisions rest in the hands of the governor, as opposed to a committee.

While RBI is not statutorily independent, in practice it has wide latitude in setting monetary policy. “India also needs to move towards a monetary policy committee structure,” Subbarao said in answer to a question following a speech at the Bank of Mauritius, which has such a committee in place.  

“For that to happen there are some necessary conditions to be fulfilled and one of the necessary conditions must be more independence of central bank,” Subbarao said.

India’s Chief Economic Advisor, Raghuram Rajan, widely seen as the likely successor to Subbarao, whose terms expires in September, favours moving towards a more powerful monetary policy committee.  

RBI has a technical advisory committee on monetary policy, set up in 2009 as a precursor to a formal policy committee. However, the committee has only an advisory role and Subbarao has in several instances made policy decisions that went against the majority view of the panel.