The six-member monetary policy committee (MPC), which includes three central bank officials and three external members, is recast every four years when the government appoints a new set of external members.
The reshuffle could change a recent split view within the panel which saw two of the six members vote for a rate cut on the argument that high inflation adjusted real rates could hurt the economy’s growth outlook.
The other four members remained focused on bringing inflation down to the 4% target, which has eluded the panel during a period of a pandemic, war and weather-related uncertainties.
This was a global problem, said Madhavi Arora, chief economist at Emkay Global. “Globally goods inflation went through the roof, there was a supply problem, so very little they could do,” Arora said.
The panel is likely to keep rates unchanged for the eighth consecutive meeting on Aug. 8, with inflation having stayed above 5% in June, a Reuters poll showed. A restructured committee could choose to take a different view, focusing on global conditions, where the slowdown concerns are likely to prompt the U.S. Federal Reserve to start cutting interest rates in September, analysts said. Even within the current framework of targeting headline inflation, committee members can choose to take a more dovish view, said Kaushik Das, chief economist India and South Asia at Deutsche Bank said.
There is scope for monetary easing, “provided the central bank works with the lower range of the neutral real rate and food price volatility subsides somewhat in the period ahead, giving comfort to the central bank to meet its inflation targeting mandate,” he said.
RBI chief Shaktikanta Das however, has reiterated on multiple occasions the need to remain focused on bringing inflation towards the 4% target on a sustained basis before shifting policy.
The process of selecting a new committee has not formally begun but appointments are likely by end-September, a government source said.
The government did not respond to an emailed request for comment.
TOP DECK CHANGES
Following the exit of the three external members of the committee, several other key officials are due to exit their posts.
Governor Das’ second term ends on Dec. 10, and while a third term is technically possible, it would be unprecedented.
A month later, Das’ key deputy Michael Patra, who heads the central bank’s monetary policy division will also complete an extended term.
Another deputy governor – Rajeshwar Rao – who leads the banking regulation department is due to complete his term in early October while the country’s chief economic advisor V. Anantha Nageswaran’s tenure will conclude at the end of January.
Extensions or new appointments should be concluded and announced well ahead avoiding last minute delays, said Shubhada Rao, founder of economic research firm QuantEco Research.
“Unwarranted suspense in critical appointments is unsettling and distracting.”
