The government on Monday notified the rules for setting up of the Reserve Bank of India's monetary policy committee (MPC), giving effect to amendments to the RBI Act in this regard.
"Government has decided to bring the provisions of amended RBI Act regarding constitution of MPC into force on 27th June, 2016 so that the statutory basis of MPC is made effective, " a finance ministry statement here said.
The RBI's benchmark interest rates, which are currently decided by the governor, will now be determined by a six - member MPC.
As per the amendments to the RBI Act through the Finance Bill passed in the Lok Sabha, the committee will have six members, with three appointed by the RBI and three government appointees nominated by an external selection committee.
The RBI governor will have the casting vote in case of a tie.
From the RBI, the committee will consist of the governor, the deputy governor in charge of monetary policy and one official nominated by the central bank.
"The other three members of MPC will be appointed by the central government, on the recommendations of a search - cum - selection committee, which will be headed by the Cabinet Secretary, " the statement said.
"These three members of MPC will be experts in the field of economics or banking or finance or monetary policy, will be appointed for a period of 4 years and shall not be eligible for re - appointment.
The meetings of the MPC shall be held at least 4 times a year and it shall publicise its decisions after each such meeting, " it added.
According to the ministry, apart the rules for constituting the monetary policy committee, "factors constituting failure to meet inflation target under the MPC Framework have also been notified on 27th June, 2016".
The inflation target will be decided in consultation with 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.
Economic Affairs Secretary Shaktikanta Das had said last week that the government will take up the selection of the three names from its side once the rules were notified.
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