IN AN unprecedented development, the Reserve Bank of India (RBI) Monday postponed the bi-monthly meeting of the Monetary Policy Committee (MPC) scheduled from September 29 to October 1, after the government failed to nominate its three members to the six-member panel on time, The Indian Express has learnt.
The MPC is a statutory committee that fixes the key policy interest rates and monetary policy stance of the country as well as the inflation target.
The four-year tenure of the three government-nominated members — Ravindra Dholakia, Chetan Ghate and Pami Dua — had expired after the previous policy on August 6. The government had not announced the three new members till late Monday.
“The meeting of the Monetary Policy Committee during September 29, 30 and October 1, 2020, as announced, is being rescheduled. The dates of the MPC’s meeting will be announced shortly,” the RBI said.
Though the RBI had sought an extension of the tenure of external members until March due to the Covid situation, it was not accepted by the government as there was no such provision in the RBI Act.
The new members were expected to be named Monday but there may have been delays due to “certain departmental clearances required to appoint the members”, government sources said, adding that the process is likely to be completed soon.
It’s for the first time in recent history that the RBI had to postpone its monetary policy review. The MPC comprises three external members and three members from the RBI. The RBI Governor heads the MPC, with the Deputy Governor in charge of the Monetary Policy Department, and the Executive Director looking after the policy as the other members from the central bank.
When contacted by The Indian Express, two senior Finance Ministry officials did not comment on the reasons for the delay. Incidentally, if there’s a tie on any proposal, the RBI Governor holds the casting vote.
The first MPC meeting was held on October 4, 2016 when Urjit Patel was the RBI Governor. The MPC has since then slashed the key policy rate — Repo rate — by 250 basis points to four per cent in the last four years with 115 bps reduction in the last nine months. Prior to October 2016, the RBI Governor used to decide on policy rate.
In its last policy meeting on August 6, the MPC kept the Repo rate unchanged at four per cent and decided to “continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward”.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of four per cent within a band of plus or minus two per cent, while supporting growth, the MPC had said.
In 2016, the government had provided statutory backing to the MPC by notifying amendments to the RBI Act, 1934, clearing the decks for the formation of the committee.
As per the amendments, the central government should, in consultation with the (Reserve) Bank, determine the inflation target in terms of the Consumer Price Index, once every five years. The central government should, upon such determination, notify the inflation target in the official gazette.
The retail inflation level is now above the target of six per cent with the August reading at 6.69 per cent. The agreement with the government stated that the RBI should be seen to have failed to meet the target if inflation is “more than 6 per cent for three consecutive quarters for the financial year 2015-16 and all subsequent years” or “less than 2 per cent for three consecutive quarters in 2016-17 and all subsequent years”.
Experts, meanwhile, expect the MPC to maintain status quo in the next meeting. “There is likely to be no change in the repo and reverse repo rates with RBI keeping a close eye on key macroeconomic data. The Monetary Policy Committee’s stance will continue to be accommodative and supportive of economic growth,” said Shanti Ekambaram, Group President — Consumer Banking, Kotak Mahindra Bank.
“This is crucial as we are now in a critical phase of India’s recovery — high frequency data shows that many segments of the economy are moving and are reaching close to 70-80 per cent of pre-Covid levels,” Ekambaram said.
“Inflation is still elevated. However, with normal monsoons and higher agriculture output, inflation should moderate through Q3. Overall, expect a ‘wait and watch’ policy,” she said.
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