December 9, 2022

India Picks Central Bank Rate Panel After Unexplained Delay

(Bloomberg) — India’s government appointed three new external members to the central bank’s committee that decides interest rates, allowing policy meetings to resume after last week’s delay.

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The Finance Ministry on Monday announced the following names to the six-member Monetary Policy Committee of the Reserve Bank of India:

Ashima Goyal, a professor at the Mumbai-based Indira Gandhi Institute of Developmental ResearchJayanth R Varma, a professor of finance at the Indian Institute of Management in AhmedabadShashanka Bhide, an agricultural economist and a senior adviser with the National Council of Applied Economic Research in New Delhi

The new appointees will replace the three previous external MPC candidates whose terms expired with the last policy meeting in August. They’ll join three RBI officials on the committee, led by Governor Shaktikanta Das.

The government’s delay in selecting the new members meant the RBI didn’t have enough policy makers for its scheduled three-day interest-rate meeting that was due to begin Sept. 29, forcing the central bank to defer it, without explanation. The RBI hasn’t yet said when it will resume its policy meeting.

The delay fueled uncertainty for investors and bankers at a time when the central bank has been providing the bulk of the stimulus for an economy heading for its worst contraction in years. The RBI has cut borrowing costs by 115 basis points this year and pumped in billions of dollars of liquidity into the financial system.

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The three new MPC members have indicated in past comments their preference for monetary and fiscal stimulus and the need to support economic growth.

“We believe the new MPC members are likely more neutral-to-dovish in terms of their policy stance,” said Sonal Varma, chief economist for India and Asia, ex-Japan, at Nomura Holding Inc. in Singapore. “This could tilt the overall composition of the MPC slightly more in the dovish direction.”

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Goyal, a member of the Modi’s economic advisory council, wrote in a column in Business Line newspaper in early August that the RBI should look through the current spike in inflation due to temporary supply disruptions.

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India’s headline retail inflation is above 6%

“Inflation expectations may be a bit unhinged now, but thin information gives a large impact to RBI’s communication,” she wrote. The central bank should instead focus on core inflation, which is expected to remain subdued, she said.

IIM’s Varma, who will be Goyal’s colleague on the MPC, wrote in a blog post in November that the RBI needs to consider some form of quantitative easing to improve the transmission of central bank rate cuts.

In an emailed response to questions in April, Bhide said he favored stimulus for the farming sector to improve food security and livelihoods.

With inflation still well above the 4% midpoint of the central bank’s 2%-6% target range, the RBI has recently taken a more cautious approach, keeping rates unchanged in August. Before the delay in last week’s MPC meeting, economists in a Bloomberg survey had predicted no change.

“We do not expect the new MPC to have any immediate impact on the policy outturn as inflation remains above the RBI’s upper threshold and activity has incrementally improved,” Nomura’s Varma said.

(Updates with additional detail of members and comment from economist.)

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