What's different about Urjit Patel's first monetary policy

The newly constituted six-member Monetary Policy Committee headed by Reserve Bank of India Governor Urjit Patel will hold its first meeting on October 3 and 4 to decided on key interest rate.

Till now, the RBI governor used to decide on key policy rates, including the repo rate or short-term lending rate.

However, this time the all-powerful interest-rate setting panel, whose constitution was notified by the government on Thursday, will take call on interest rate.

That’s not the only change. The Reserve Bank of India has also decided to change the timing of announcement of its policy review, due next Tuesday, to mid-afternoon.

For long, the central bank has been unveiling the monetary policy at 11 am.

‘The MPC will meet on October 3 and 4, 2016 for the fourth bi-monthly monetary policy review for 2016-17. The resolution of the MPC will be placed on the website at 2.30 pm on October 4, 2016,’ the Reserve Bank said in a statement.

The announcement, which will come in during market hours itself, will be followed by a press conference to be addressed by new Governor Urjit Patel at 2.45 pm, it said.

Under his predecessor Raghuram Rajan, the press meet had been starting at 11.10 am followed by a conference call with researchers and analysts in afternoon.

When D Subbarao was at the helm, he addressed the press at 3 pm after announcing the policy at 11 am while the analysts call was slated for the next afternoon.

Since this is the fourth bi-monthly policy review of this fiscal and the first under the MPC framework, the Reserve Bank will be coming up with the twice-a-year Monetary Policy Report that takes stock of macroeconomic developments.

This will be Patel’s maiden policy announcement as the governor. He was the deputy governor in-charge of the monetary policy function for over four years before the recent elevation.

It will also be the first policy to be announced under the MPC, where the decision-making on rates will shift to the six-member panel which has equal representation from RBI and the government.

The MPC, in which three members are from the RBI and three others nominated by the government, will target to keep inflation at 4 per cent with an upper and lower tolerance level of 2 per cent.

Each of the six members on the MPC will have one vote. In the case of a tie, the RBI governor will have a casting vote in deciding on the rate as guided by newly-established inflation framework. He, however, would not be able to veto a majority decision.

“A committee-based approach for determining the monetary policy will add lot of value and transparency to monetary policy decisions,” the finance ministry had said earlier.

While RBI nominees are Executive Director Michael Patra, Deputy Governor in-charge of monetary policy R Gandhi and Patel, who has a casting vote, the government’s members are academics Chetan Ghate of the Indian Statistical Institute, Pami Dua of Delhi School of Economics and Ravindra Dholakia of IIM Ahmedabad.

With inflation subsiding last month and showing signs of a downward trend, arrival of a new chief of the central bank and the panel-led decision making has led to expectations of a rate cut on Tuesday.