RBI's newly-constituted MPC to meet for 3-days beginning Wednesday; Decision on Oct 9

The six-member MPC headed by RBI Governor has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent. The external members are appointed by the central government from amongst persons of ability, integrity and standing, having knowledge and experience in the field of economics, banking, finance or monetary policy.

The newly-constituted Monetary Policy Committee (MPC) of the Reserve Bank will begin its three-day deliberations on Wednesday amid expectations that the central bank this time around may refrain from changing the benchmark lending rates. On September 28, the RBI had postponed the meeting of the Monetary Policy Committee (MPC), which must have a quorum of four, as the appointment of independent members was delayed. The meeting was scheduled to take place from September 29.

Within a day of the government appointing three independent members of the MPC, the Reserve Bank announced that the rate-setting panel will meet from October 7 to 9 for the bi-monthly review of the monetary policy. "... the next meeting of the Monetary Policy Committee (MPC) is scheduled during October 7 to October 9, 2020," the Reserve Bank said in a statement.

The decision of the rate-setting panel will be announced on October 9. The government has appointed three eminent economists Ashima Goyal, Jayanth R Varma and Shashanka Bhide as members of the MPC.

The new members replace Chetan Ghate, Pami Dua, and Ravindra Dholakia. They were appointed on the panel for four years on September 29, 2016. As per the RBI Act, the external members can hold office for a period of four years and are not eligible for re-appointment. Bhide is senior advisor at the National Council for Applied Economic Research, while Goyal is a professor at the Indira Gandhi Institute of Development Research. Varma is professor at the Indian Institute of Management, Ahmedabad.

The other three ex-officio members of the MPC are Reserve Bank Governor, Deputy Governor (in-charge of monetary policy) and one RBI officer to be appointed by the central board. The six-member MPC headed by RBI Governor has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.

The external members are appointed by the central government from amongst persons of ability, integrity and standing, having knowledge and experience in the field of economics, banking, finance or monetary policy. The last meeting of the panel was held during August 4 to 6, 2020. It was the 24th meeting of the rate-setting panel since it met for the first time in October 2016.

Experts, including bankers, are of the opinion that the Reserve Bank is likely to maintain status quo and keep interest rates unchanged this time in view of rising retail inflation driven mainly by supply side issues. RBI Governor Shaktikanta Das had earlier said although there was headroom for further monetary policy action, it was important to keep "our arsenal dry and use it judiciously." After the August meeting, the RBI had kept interest rates unchanged to help tame inflation that in recent times had surged past 6 per cent mark, and said that the economy is in an extremely weak condition following the pandemic. The RBI has cut interest rates by 115 basis points since February.

The government moved the interest rate setting role from the RBI Governor to the six-member MPC in 2016. The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower of 2 per cent. As per the Reserve Bank of India Act, 1934, the central bank is required to organise at least four meetings of the MPC in a year.

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