RBI overhaul to ease relationship with govt

New Delhi

THE biggest change in the Reserve Bank of India's (RBI) eight-decade history promises to soothe what was often a fractious relationship between the central bank and government.

Prime Minister Narendra Modi's administration on Thursday announced three candidates to join an equal number of RBI representatives on a new monetary policy committee (MPC), paving the way for India's first collective interest rate decision. The move frees the governor from facing the brunt of criticism from the government, which has historically held contradictory demands of lower borrowing costs as well as a tight rein on inflation.

Moreover, since the panel will be guided by an inflation target cemented into law last month, its technocrats in the financial hub of Mumbai will be empowered to stand up to pressure from their bosses in the political capital New Delhi. The MPC's first test could come as early…