The next bi-monthly monetary policy review of the central bank’s interest rates is scheduled on October 4.
Patel, who had the customary pre-policy review meeting with the Finance Minister, met Jaitley here earlier this month after he took charge of RBI on September 4 at the end of tenure of the previous Governor Raghuram Rajan.
Meanwhile, the government on Thursday notified the constitution of the Monetary Policy Committee (MPC) of the RBI that has been entrusted with the task of fixing the central bank’s key lending rate required to contain inflation within the specified target level.
The RBI Act, 1934, was amended by the Finance Act, 2016, to provide for a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability.
The government last week named three academics from the country’s top institutions as its nominee members to the MPC.
The names, cleared by the Appointments Committee of the Cabinet, are: Chetan Ghate, Professor at the Indian Statistical Institute; Pami Dua, Director at Delhi School of Economics; and Ravindra Dholakia, Professor at the Indian Institute of Management, Ahmedabad.
The elevation of Urjit Patel as RBI Governor has naturally raised expectations among those who were critical of Rajan for not easing enough the monetary policy by cutting rates.
When talking about the challenges for Patel as Governor, it should also be kept in mind that his moorings are as monetarist as his predecessor Rajan’s were, and he is considered to attach the same importance to inflation control as did Rajan.
His views on monetary policy were expressed at the time Rajan held rates in the February 2015 review after making an unexpected rate cut a month earlier — the first in nearly two years.
Patel at the time elaborated on the “important backdrop” to Rajan’s move to hold rates.
“We are in the midst of the age of competitive depreciation and of a beggar-my-neighbour philosophy. It brings to mind an old African saying that when elephants fight, the grass suffers,” Patel said at a press conference to announce the policy review, on the trend of accommodative monetary policies being adopted by developed economies.
“While the ECB (European Central Bank) and the Bank of Japan are printing money and devaluing their currencies on one hand, the US economy is reviving on the other. Anyone in the middle is getting crushed,” he pointed out.
Under Rajan, the RBI has reduced interest rate by 150 basis points since January 2015.