Government to appoint new external members to MPC ahead of crucial rate meeting in October: Report

The government is likely to appoint new external members to the Reserve Bank of India’s Monetary Policy Committee by October ahead of a crucial meeting on interest rates, Bloomberg reported citing sources. 

The selection panel, comprising the governor of the RBI and government officials, will recommend probable candidates in the next two weeks with an announcement likely by the end of September or early October, the report added. 

The development assumes significance as the latest MPC minutes released on August 22 revealed significant concerns raised by external members Ashima Goyal and Jayanth R Varma. 

In their final meeting before their terms ending in October, Goyal and Varma strongly advocated for a more cautious monetary policy, specifically calling for a reduction in the policy repo rate. 

Most MPC members opted to maintain the policy repo rate at 6.50 percent, reaffirming their commitment to controlling inflation while fostering growth. Governor Das defended this decision, emphasising the need for price stability to ensure sustainable growth. 

The six-member MPC is made up of three external members and three RBI officials, led by Governor Shaktikanta Das. The external members are usually economists or specialists in finance and macroeconomics and are appointed for four years. The present terms for external members Jayanth Varma, Ashima Goyal and Shashanka Bhide ends on October 4.  

The six-member selection panel — made up of Das, Cabinet Secretary TV Somanathan, Economic Affairs Secretary Ajay Seth and other officials — will need to avoid a repeat of 2020, when a delay in the appointment of the external MPC members resulted in the postponement of rate meeting leading to policy uncertainty and was much criticised. 

The central bank has left its benchmark interest rate unchanged for more than 18 months already, with Das reluctant to ease policy until inflation settles around the central bank’s 4 percent target. Most economists don’t expect the RBI to opt for a rate cut until the final quarter of this year, predicting it will likely move only after the US Fed pivots. 

The Federal Reserve is expected to cut interest rates as early as September, prompting central banks elsewhere to take action to ward off market turmoil. In Asia Pacific, New Zealand and the Philippines have already reduced interest rates.