Reserve Bank of India (RBI) Governor Raghuram Rajan met Union Finance Minister Arun Jaitley on Thursday, following the government this week notifying the rules for setting up the RBI's Monetary Policy Committee (MPC) to decide on interest rates.The meeting comes a day after the Union cabinet approved the 7th Pay Commission recommendations for central government employees, the "recurring burden" of which on central government finances this year, including for arrears payment, was estimated by Jaitley on Wednesday at Rs 84,933 crore."The Finance Ministry and RBI keep talking all the time," Rajan told reporters after the meeting here.To a query on whether the structure of the MPC would be put in place before the next bi-monthly monetary policy review slated for early August, Rajan said, "I think we are putting out the structure. Let's see how far it goes."According to the ministry, apart from the rules for constituting the Monetary Policy Committee, "factors constituting failure to meet inflation target under the MPC Framework have also been notified on June 27, 2016".The inflation target will be decided in consultation with the RBI and notified in the official gazette.
The interest rates would be set up with the aim of achieving the inflation target, to be determined by the government.Under the current system, the RBI governor has the veto over the existing advisory committee, composed of RBI members and outside appointees, that decides on policy rates.The governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy.Holding the RBI's key lending rate at 6.5 per cent in its monetary policy review earlier this month, Rajan had, in the policy statement, qualified the upside risks to inflation as firming global commodity prices, the implementation of the 7th Central Pay Commission report, the rise in inflation expectations and overall price scenario.Rajan has also announced his intent to return to academia at the expiry of his tenure in September, and will only oversee the next-third-policy review of the fiscal due on August 9. India's retail inflation rose for the second straight month in May to 5.76 per cent from 5.47 per cent in the month before due to a sharp spike in food prices, according to official data on the Consumer Price Index (CPI) released this month.