RBI's New MPC Members - More Neutral Than Dovish; Cautious Camp To Prevail: Nirmal Bang

Nirmal Bang Report

The government has appointed three new external members to the Monetary Policy Committee of the Reserve Bank of India for a period of four years. This is particularly important as the two external members Dr. Ashima Goyal and Prof. Jayanth Varma had adopted a dovish tone, voting for a change in stance and rate cuts.

The three new external members are Prof. Ram Singh, Director, Delhi School of Economics, University of Delhi; Saugata Bhattacharya , Senior Fellow Centre for Policy Research and former Chief Economist at Axis Bank and Dr. Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development.

All three externally appointed members are distinguished in their own right with Prof. Ram Singh specialising in public economics and contract theory, Saugata Bhattacharya in Banking and financial markets and Dr. Nagesh Kumar in industrial policy, regional integration and international trade and development, having served at the United Nations Economic and Social Commission for Asia and the Pacific).

However, apart from Saugata Bhattacharya who has a background in the financial sector and was part of the RBI’s Working Group on Monetary Policy (2010), there is no stated view on monetary policy. In our view, the external members are likely to adopt a neutral stance, at least initially.

We see increasing probability of RBI shifting stance to neutral at the October meeting (with a 50 basis points rate cut from the Fed ) which also increases the probability of a rate cut in December-24 against our base case of a rate cut in Feb-25.

In the near term, inflation is likely to inch up in Sep-24, even as we see signs of cyclical moderation in growth.

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