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Power to decide on rates should remain with RBI governor: C Rangarajan


  • The government issued a revised draft of the Indian Financial Code (IFC) to propose a monetary policy committee headed by RBI ‘chairperson’ to decide on key interest rates by a majority vote.
  • The draft has sought to take away the veto power of the RBI governor while taking rate-related decisions.
  • The move is seen as a step to dilute RBI’s power as an independent entity and may set the stage for another round of friction between the finance ministry and the central bank.
  • C Rangarajan, former Reserve Bank of India governor, has criticised the suggestion to take away the veto power of RBI governor in making the final decision on shortterm interest rates, sometimes overriding a majority vote as the central bank is responsible to rein in inflation.
  • He argued that a preferred alternative would be to have a monetary committee with a majority of members from RBI and then the question of veto would not arise. Then only the responsibility and accountability of RBI can be established.
  • He said that the government needs to reciprocate by ‘strong’ food policy management, higher public spending and recapitalisation of banks.

Source: ET

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