At present, the decision on interest rates rests solely with the RBI, though the government is informed about it in advance. Stressing that it was his personal view, Subbarao said a gradual shift should take place to a committee-based system after certain preconditions are met.

"First, the central bank should be given legally-backed formal autonomy. Second, in a situation where inflation dynamics are more often dictated by supply side elements, the central bank's ability to control inflation is restricted. An MPC mechanism in such a situation can weaken the coordination between the government and the Reserve Bank.

''However, when our financial markets deepen further, operating procedures improve and money transmission becomes more efficient, shifting to an MPC system becomes a realistic option," he said.

On the Financial Stability and Development Council (FSDC), the RBI Governor said, "It is important for the government and the regulators in India to develop conventions and practices which will serve the goal of preserving financial stability without eroding the autonomy of the regulators."

The proposed FSDC structure attempts to strike a balance between the government's objective of ensuring financial stability to reduce the probability of a crisis and the operative arrangements involving the central bank and other regulators.

While a sub-committee under the RBI governor is expected to evolve as a more active, hands-on body for managing financial stability in normal times, the FSDC would have a broad oversight and will assume central role in the time of crisis.