Mumbai: The Reserve Bank of India will hold its delayed policy meeting this week after the government belatedly appointed new members to the interest rate-setting committee.
The Monetary Policy Committee will meet 7-9 October, the RBI said in a statement Tuesday, more than a week later than originally planned. The RBI’s statement came after the Finance Ministry’s announcement on Monday of three new external members to the committee to replace those whose terms expired in August.
The abrupt postponement of last week’s policy meeting, without any explanation, fueled uncertainty for investors and bankers at a time when the central bank had been providing the bulk of the stimulus for an economy heading for its worst contraction in years. The RBI has cut borrowing costs by 115 basis points this year and pumped in billions of dollars of liquidity into the financial system.
The three new MPC members, who will join three RBI officials on the committee led by Governor Shaktikanta Das, are the following:
- Ashima Goyal: A professor at the Mumbai-based Indira Gandhi Institute of Developmental Research, she was previously involved in policy making in her capacity as an external member of the central bank’s technical advisory panel that preceded the MPC regime
- Jayanth R Varma: He teaches finance at the Indian Institute of Management in Ahmedabad
- Shashanka Bhide: He’s an agricultural economist and a senior adviser with the National Council of Applied Economic Research in New Delhi.
All three new candidates have indicated in past comments their preference for monetary and fiscal stimulus and the need to support economic growth.
“We believe the new MPC members are likely more neutral-to-dovish in terms of their policy stance,” said Sonal Varma, chief economist for India and Asia, ex-Japan, at Nomura Holding Inc. in Singapore. “This could tilt the overall composition of the MPC slightly more in the dovish direction.”
Goyal, a member of the Modi’s economic advisory council currently, wrote in a column in Business Line newspaper in early August that the RBI should look through the current spike in inflation due to temporary supply disruptions.
“Inflation expectations may be a bit unhinged now, but thin information gives a large impact to RBI’s communication,” she wrote. The central bank should instead focus on core inflation, which is expected to remain subdued, she said.
IIM’s Varma, who will be Goyal’s colleague on the MPC, wrote in a blog post in November that the RBI needs to consider some form of quantitative easing to improve the transmission of central bank rate cuts.
In an emailed response to questions in April, Bhide said he favored stimulus for the farming sector to improve food security and livelihoods.
With inflation still well above the 4% midpoint of the central bank’s 2%-6% target range, the RBI has recently taken a more cautious approach, keeping rates unchanged in August. Before the delay in last week’s MPC meeting, economists in a Bloomberg survey had predicted no change.
“We do not expect the new MPC to have any immediate impact on the policy outturn as inflation remains above the RBI’s upper threshold and activity has incrementally improved,” Nomura’s Varma said. – Bloomberg
Also read: MPC appointments delay is unusual, but vacancies at the top of RBI & banks almost a norm