Reconstitution of RBI’s Monetary Policy Committee (MPC): New Members Notified
Introduction
On October 1, the government reconstituted the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), appointing new members to continue steering India’s monetary policy.
Composition of the MPC
The Monetary Policy Committee has six members:
- Internal Members (RBI):
- Shaktikanta Das, Governor and ex-officio Chairperson
- Michael Debabrata Patra, Deputy Governor in charge of monetary policy
- Rajiv Ranjan, Executive Director (or another officer nominated by the Central Board)
- External Members: Appointed by the Union Government for a four-year term.
New External Members
Effective from October 1, the new external members are:
- Ram Singh: Director, Delhi School of Economics, University of Delhi
- Saugata Bhattacharya: Economist
- Nagesh Kumar: Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi
These new members replace:
- Ashima Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai
- Shashanka Bhide, Honorary Senior Advisor, National Council of Applied Economic Research, Delhi
- Jayanth R. Varma, Professor, Indian Institute of Management, Ahmedabad
Their term will conclude on October 4, 2024.
Role and Objectives of the MPC
The MPC, established in June 2016, primarily aims to:
- Review monetary policy periodically
- Broaden monetary policy decisions by incorporating external viewpoints
- Target inflation, aligning India’s Consumer Price Index (CPI) to a 4% goal with a tolerance range of 2% to 6%
In August 2024, India’s inflation rate stood at 3.65%, marking the second lowest level in five years.
Upcoming Meetings and Reports
The next bi-monthly MPC meeting is scheduled for October 7-9. The State Bank of India’s recent ‘Eco Wrap’ report suggests that the MPC might take an independent stance on domestic interest rates, potentially diverging from US Federal Reserve actions.
Insights from the ‘Eco Wrap’ Report:
- Economic Conditions: Domestic conditions are critical, with growth exceeding potential output, justifying a potential pause in rate adjustments.
- Future Projections: No rate action is expected in the calendar year 2024, with a possible rate cut anticipated by February 2025.
Monetary Policy Committee: An Overview
Background and Establishment
The Monetary Policy Committee (MPC) was established by the Government of India in June 2016. Its chief mandate is to provide a comprehensive review of the monetary policy landscape, thereby integrating diverse perspectives into India’s economic decision-making process.
Core Functions and Objectives
The MPC is tasked with key objectives that ensure the financial stability and economic growth of the nation. These include:
- Inflation Targeting: The MPC aims to keep the headline Consumer Price Index (CPI)-based inflation at a target of 4%, with a lower tolerance level of 2% and an upper level of 6%.
- Policy Reviews: Regular bi-monthly meetings to review and adjust monetary policy as needed.
- Broad-based Decision Making: Incorporation of external expertise to enhance the decision-making process.
Recent Trends and Future Outlook
The next MPC meeting is scheduled for October 7-9. In its recent ‘Eco Wrap’ report, the State Bank of India highlighted significant points of discussion, including possible divergences from U.S. Federal Reserve policies. The key excerpts from the report are:
- Domestic vs. Global Considerations: RBI may focus on domestic economic conditions rather than following U.S. interest rate trends.
- Potential Rate Changes: No rate alterations are expected in 2024, with a possible rate cut projected for February 2025.
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