The reorganized Reserve Bank of India (RBI) Monetary Policy Committee (MPC), which will meet this week, is expected to retain the main policy instrument: the repo rate, or the rate at which the RBI lend. funds in banks: unchanged at 4% on Friday, as retail inflation has been above the upper band of the RBI inflation target of 6% for five consecutive months.
- After a delay of more than a week, the government appointed Shashanka Bhide, Ashima Goyal and Jayanth R Varma on Monday as independent members of the six-member MPC RBI.
- Bhide is currently Senior Advisor to the National Council for Applied Economic Research, while Goyal is a Professor at the Indira Gandhi Institute for Development Research in Mumbai.
- Varma, who was previously a full-time member of Sebi, is currently a professor at IIM, Ahmedabad. The revamped MPC will meet on October 7, 8 and 9 to finalize monetary policy, the RBI said on Tuesday.
- The central bank was forced to postpone the bi-monthly MPC meeting scheduled for September 29, 30 and October 1, as the government failed to nominate its three members to the six-member panel.
- MPC is the statutory committee that sets the key interest rate and the direction of the country’s monetary policy, as well as the inflation target.
- The terms of the three members appointed by the government in 2016 expired after the previous policy of August 6, when the pension rate remained stable at 4%.
- As Covid-19 deals a devastating blow to the economy and an already weak financial sector, India calls for looser monetary policy.
Uncertainty about growth is essential
- Given the current level of inflation and the uncertainty about the growth outlook, the RBI MPC is expected to take a wait-and-see approach and keep the pension rate at 4%, and continue its accommodative monetary policy at its meeting. ‘October. .
- According to Care Ratings, there would be a status quo on this monetary policy, but given concerns about economic growth, the RBI should maintain the stance of monetary policy at “accommodative”.
- The RBI is likely to guarantee excess liquidity in the banking system mainly through open market operations and special OMOs with the dual objective of improving financial conditions and managing the yield curve.
- Given the current level of inflation and the uncertainty about the growth outlook, the RBI MPC is expected to take a wait-and-see approach and keep the pension rate at 4%, and continue its accommodative monetary policy at its meeting.
- If there is no consensus on the rate or policy at the MPC meeting, there will be a voting process. MPC members have repeatedly differed over the number of buyback rate changes, but ultimately opted for a majority decision.
- Although the MPC cut the policy rate (the repurchase rate) by 250 basis points to 4%, the pass-through of the rate cuts has been rather slow and banks have taken their time passing on profits.