21/06/2016 11:10 AM IST | Updated 15/07/2016 8:27 AM IST

Govt May Appoint New RBI Governor By End Of July

India's central bank - Reserve Bank of India (RBI) governor Raghuram Rajan looks on during a press conference following a monetary policy review meeting in Mumbai on June 7, 2016.The Reserve Bank of India held its key interest rate at a five-year low, citing inflationary fears in the world's fastest-growing major economy ahead of the imminent monsoon rains. In a widely expected move, RBI said it would keep the benchmark repo rate, the level at which it lends to commercial banks, at 6.5 percent. / AFP / INDRANIL MUKHERJEE (Photo credit should read INDRANIL MUKHERJEE/AFP/Getty Images)

The successor to outgoing Reserve Bank of India (RBI) Governor Raghuram Rajan could be chosen by the end of July, according to media reports.

The next governor will be selected by Prime Minister Narendra Modi and Finance Minister Arun Jaitley, and not by a cabinet secretary-led search panel, an Economic Times report said citing sources. The new governor may undertake a ‘special duty’ at RBI before Rajan’s formal term expires for a smooth transition.

A new monetary policy committee, which will decide on interest rates among other things, will also be set up in the coming weeks, according to media reports. There have been disagreements on monetary policy between the governor and the current government, which has been seeking more cuts on interest rates to stimulate growth.

On Monday, Rajan outlined how chasing interest rate cuts is at odds with the goal of keeping inflation in check. India had untenable levels of inflation in the double digits only a few years ago. The inflation rate halved in most recent fiscal.

According to a Business Standard report that cited sources, Rajan couldn't commit for a full three-year term, and his decision to leave was entirely "personal." The report also said that the government had ignored BJP MP Subramanian Swamy's personal attacks at the governor, but had sought views from several stakeholders. "This is a responsible government and decisions are taken keeping the national interest in mind. All the outside noise is not even considered," the source told Business Standard.

Possible successors to Rajan include former RBI Deputy Governors Rakesh Mohan and Subir Gokarn, RBI Deputy Governor Urjit Patel, Economic Affairs Secretary Shaktikanta Das and Chief Economic Advisor Arvind Subramanian, ET report said.

RBI is expected to announce its next decision on interest rates on August 9, when the next monetary policy review is due.

"Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed," a senior government official told ET. "Moreover, the bank cleanup initiated under the asset quality review, having already brought more credibility to bank balance sheets, is still ongoing."

On Saturday, Rajan said no to a second term, and said he would return to academia at the end of his term.