(Corrects time period for CPI inflation target in 8th
* RBI report proposes to make inflation management main
* RBI report recommends consumer prices as main inflation
* Report proposes eventual CPI inflation target of 4 percent
* Recommends monetary policy be set by committee
By Suvashree Dey Choudhury and Neha Dasgupta
MUMBAI, Jan 21 (Reuters) - The Reserve Bank of India should
make managing inflation its main objective and set monetary
policy by committee, a central bank panel has recommended, a
shift that would bring its practices in line with many other
The recommendations are widely expected to be accepted. They
were issued late on Tuesday by the panel set up by RBI Governor
Raghuram Rajan, which also recommended using consumer prices as
the primary measure of price changes and setting an eventual
inflation target of 4 percent.
The reforms are aimed at making policy-setting more
effective and transparent in a country that has long struggled
with high inflation.
They would mark the most dramatic change implemented by the
50-year-old Rajan, a high-profile former chief economist at the
International Monetary Fund, who took office on Sept. 4 with an
ambitious agenda and amid high expectations.
"This is one of the most important steps taken by RBI in at
least the last 15 years, when we moved away from money supply
targeting to repo, reverse repo," said Samiran Chakraborty, head
of research at Standard Chartered Bank in India, referring to
the current policy rates.
"Since then, there has been no proper revamp in the
monetary policy framework, while the economy has moved into a
different inflation, growth trajectory," he said. "The world has
become more integrated."
In its 130-page report, the panel recommends that managing
inflation take precedence over the bank's two other current main
objectives of economic growth and financial stability.
If adopted, the RBI would use consumer price index
inflation, which now stands at 9.87 percent, as the
benchmark for targeting inflation. It would aim to pare CPI
inflation to 8 percent over the next 12 months and 6 percent in
the next 24 months, with an eventual target of 4 percent.
Historically, Indian policymakers have relied on the
wholesale price index, which eased to a five-month
low of 6.16 percent in December, and did not set a specific
target. Rather, the RBI was perceived to have a comfort zone of
WPI inflation of around 5 percent.
As expected, the panel recommended that monetary policy
decisions be made by a committee, which would consist of five
members including the governor, a deputy governor, the executive
director in charge of monetary policy and two external members
appointed by the RBI.
Currently, the RBI governor is the sole decision maker on
monetary policy, though he is advised by his four deputy
governors and a technical advisory committee.
Some of the proposals require legislative changes, while
others can be implemented by Rajan. RBI officials were not
available for further comment late on Tuesday.
(Writing by Tony Munroe; Editing by Larry King)