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Governor may have the final say in rate decisions

News reports suggest that the proposed monetary policy committee (MPC) will now have equal representation from the finance ministry and the Reserve Bank of India, with the governor having the deciding vote on interest rates. The issue has been subject of discussion in the government circles but it has now been amicably settled and the committee is expected to replace the existing system where the RBI is the sole authority on interest rates although the governor consults a technical committee. The reports mention that there will be a six-member panel – with three members being nominated by the government and an equal number coming from RBI. While the RBI governor will have the casting vote, the deputy governor and executive director dealing with monetary policy will be the members. The cabinet is expected to approve this suggestion. According to sources, the centre and the central bank would agree to an inflation target and RBI would then move the policy rates accordingly based on the recommendations of MPC.

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