Will RBI's New Monetary Policy Team Announce Rate Cut?

The government on Tuesday appointed three external members, Ram Singh, Saugata Bhattacharya and Nagesh Kumar, to the RBI’s rate-setting Monetary Policy Committee for four years.

The central government has reconstituted the Monetary Policy Committee (MPC) of RBI, the finance ministry said in a statement.

The new members have replaced Ashima Goyal, a member of the Economic Advisory Council of Prime Minister, Shashanka Bhide, senior advisor at the National Council for Applied Economic Research and Jayanth Varma, who is a professor at the Indian Institute of Management, Ahmedabad.

RBI MPC Members 2024

Ram Singh is the director of the Delhi School of Economics, Saugata Bhattacharya is an economist, and Nagesh Kumar is the director and Chief Executive, Institute for Studies in Industrial Development, New Delhi.

The panel, which decides interest rates, is headed by the Reserve Bank of India Governor.

The reconstituted MPC is scheduled to have its first meeting from October 7 to 9. Following the MPC meeting, Governor Das will announce the bi-monthly monetary policy on October 9.

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Radhika Rao, Executive Director and Senior Economist, DBS Bank says that the varied backgrounds of the three members will provide a good mix of perspectives on domestic and global developments. Official learning of the new members is likely to be gleaned from the commentary during the rate decision as well as subsequent minutes of the policy meeting, Roa adds.

Impact of US Fed

For India, Rao said that the US Fed’s decision is a necessary but not sufficient condition for the RBI monetary policy committee to shift expeditiously to a dovish gear. Domestic conditions, primarily the inflation path, besides currency movements and growth impulse, should also warrant a pivot.

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Moderation in the July-August CPI inflation was on the back of an exceptionally favourable base effect, with stickiness in food inflation offsetting a deeper pullback in the headline print, says Rao.

“The central bank’s resolve in addressing food price inflation and preventing an un-anchoring in inflationary expectations is likely to see the MPC members lean towards a pause in October, with a softening in stance towards the December rate review. Geopolitics also warrant attention after the overnight escalation in tensions between Iran and Israel,” Rao adds.

Ajit Banerjee, President & Chief Investment Officer, Shriram Life Insurance Company, feels that the MPC would continue to maintain the status quo on the policy rates since it would like to start the rate cut cycle once it gets convinced that CPI inflation has been controlled in a relatively durable way and it will not be vulnerable to the food inflation fluctuations intermittently.

MPC Mandate

The MPC was constituted in 2016, following the finalisation of the Monetary Policy Framework Agreement that introduced inflation targeting.

The inflation target was set at 4 per cent with a tolerance band of plus/minus 2 per cent.

The six-member MPC is chaired by the RBI governor. Its official members include the Deputy Governor in charge of monetary policy and the Executive Director in the Monetary Policy Department.

According to the rules, the rate-setting committee requires at least four members to be present at a meeting.

In 2020, while the search committee, headed by Cabinet Secretary Rajiv Gauba, zeroed in on the candidates and recommended them to the government, the appointment process was delayed as certain processes, such as security clearances of some members, were not completed in time.

The search committee included RBI Governor Shaktikanta Das, NITI Aayog Vice-Chairman Suman Bery, and Economic Affairs Secretary Ajay Seth.