More Stories

Informist, Thursday, Oct. 3, 2024

 

NEW DELHI – The three new external members of the Reserve Bank of India's Monetary Policy Committee are "more neutral than hawkish", according to economists, with one of them expected to dissent at the panel's interest rate decision next week.

 

"Overall, while it is too early to draw any firm conclusions on the policy stances of the new MPC members, especially Ram Singh and Nagesh Kumar, who have not commented much on monetary policy directly, we believe the new members are more balanced and neutral, rather than hawkish," Nomura economists Sonal Varma and Aurodeep Nandi said in a note on Wednesday.

 

Late on Tuesday, the government named Delhi School of Economics Director Ram Singh, economist Saugata Bhattacharya, and Institute for Studies in Industrial Development Director and Chief Executive Nagesh Kumar as the MPC's new external members for the next four years. They will replace the outgoing Shashanka Bhide, Ashima Goyal, and Jayanth Varma, who were appointed to the committee on Oct. 5, 2020. Singh, Bhattacharya, and Kumar will attend their first MPC meeting on Oct. 7-9.

 

"In our view, the external members are likely to adopt a neutral stance, at least initially," noted Teresa John, economist at Nirmal Bang Institutional Equities. "We see increasing probability of RBI shifting stance to neutral at the October meeting which also increases the probability of a rate cut in December against our base case of a rate cut in February," John added.

 

In August, the MPC reiterated that it remains "focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth". India's headline retail inflation rate finally fell below the RBI's medium-term target of 4% in July after a gap of nearly five years. While August also saw a sub-4% print, inflation is expected to rebound sharply to around 5% in September as the favourable base effect wanes.

 

In light of an expected jump in inflation in September, economists widely see the MPC retaining the repo rate at 6.50% on Oct. 9, although Nomura's Varma and Nandi have retained their out-of-consensus call of a 25-basis-point rate cut next week. They pointed out that while Saugata Bhattacharya argued in favour of an interest rate cut in August in a newspaper column, "it remains to be seen how his views have evolved since".

 

According to Barclays economists Shreya Sodhani and Amruta Ghare, "at least one dissenting vote" is expected from the new external members at the Oct. 7-9 meeting, with Bhattacharya seen as the likely one. "We acknowledge the risk around our view for the level of dissent, as not much is known about the policy views of the external members," Sodhani and Ghare said in a note on Wednesday.

 

Meanwhile, Capital Economics' Shilan Shah thinks the exit of Ashima Goyal and Jayanth Varma will lend a "slightly more hawkish tilt" to the MPC. Both Goyal and Varma voted to cut the repo rate by 25 bps in June and August, but were in the minority.  End

 

Reported by Siddharth Upasani

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.