Urjit R Patel Committee suggests adoption of new CPI for Anchoring Monetary Policy

January 24, 2014

The Expert Committee to Revise and Strengthen the Monetary Policy Framework, headed by RBI Deputy Governor Urjit R Patel submitted its report to RBI Governor Dr. Raghuram Rajan.

Recommendations of the Urjit R Patel committee:
  • RBI should adopt the new Consumer Price Index (CPI) for anchoring the monetary policy.
  • Set the inflation target at 4% with a band of +/- 2% around it.
  • Monetary policy decision making should be vested in a Monetary Policy Committee (MPC) that should be headed by the Governor.
  • The two schemes- Dependence on Market Stabilisation Scheme (MSS) and Cash Management Bills (CMBs) may be discontinue and  the government debt and cash management must be taken over by the government’s Debt Management Office.
  • All fixed income financial products should be treated on par with the bank deposits for the purposes of taxation and TDS.
  • Detachment of Open Market Operations (OMOs) from the fiscal operations and instead linked solely to the liquidity management. OMOs should not be used for managing yields on government on government securities.

Main objective of the committee was to recommend what needs to be done to revise and strengthen the current monetary policy framework with a view to making it transparent and predictable.

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