Three new horsemen of the MPCalypse

The central bank’s Monetary Policy Committee (MPC) has three new external members, and they are starting at a time when RBI and central banks of advanced economies are singing different tunes on interest rates and growth. Ram Singh, Saugata Bhattacharya and Nagesh Kumar, with a mix of academic, public policy and markets, are succeeding J R Varma, Ashima Goyal and Shashanka Bhide. Among the three outgoing members, two – Varma and Goyal – were dissenting in favour of an interest rate reduction and shifting of monetary stance from withdrawal of accommodation. It will be interesting to see what position the newbies bring to the high table.

RBI’s tough stance helped in limiting damages from inflation. But holding on to high interest rates for too long could be adverse to economic growth. Growth rate is slowing. Automakers are cutting dispatches. Real estate sales growth appears to be tapering, and net GST collection in September rose 6.5% to ₹1.73 lakh cr, the slowest in four months. The Flexible Inflation Targeting (FIT) regime has a dual mandate – maintain price stability, while keeping in mind the objective of growth. India is still the fastest-growing major economy driven by domestic demand. But the global spillovers, as in the case of inflation, could happen with growth as well. Furthermore, keeping interest rates high could also hold back India from realising its potential growth, which has risen in the past few years.

Whether the outgoing members moved the needle on interest rates or not, they certainly contributed to a healthy debate on the issues relating to the economy. The incoming external candidates have the potential to raise the level of debate by a few notches and contribute to strengthening the institutional framework.