The newly-appointed external member on the Monetary Policy Committee (MPC) Saugata Bhattacharya may be more inclined to vote for a repo rate cut and a change in monetary policy stance to “neutral” at the upcoming MPC meeting, going by his article published in businessline in August 2024.
Bhattacharya, who is currently a Senior Fellow with the Centre for Policy Research (CPR), New Delhi, will participate in his maiden MPC meeting, scheduled from October 7 to 9, 2024.
In the article titled ‘Global volatility will impact MPC decisions’, the new MPC member emphasised that the ‘Impossible Trinity of Open Economy Macroeconomics’ hypothesis states that with free capital flows and flexible exchange rates, the task of central banks in setting interest rates at levels appropriate for moderate domestic inflation and supporting growth becomes complicated.
“For instance, while still resilient, there are early signs of slowing growth momentum. This suggests a need to boost economic growth by gradually lowering interest rates, particularly given the low “core” CPI inflation.
“....The biggest challenge in MPC’s monetary policy response is a calculated risk that early interest rates cuts, to boost India’s growth amidst global uncertainty, might potentially re-ignite inflation. Given the likely future growth–inflation trade-offs, this may be a risk worth taking,” Bhattacharya had said.
Slowing growth momentum
Referring to the aforementioned article, which was published after the August policy meeting, Barclays, in a report, said “it also noted early signs of slowing growth momentum and suggests to us that he will most likely vote for a rate cut next week.
“Therefore, while we have not seen the public views of the other two external members (Ram Singh, Director, Delhi School of Economics, and Nagesh Kumar, Director, Institute for Studies in Industrial Development, New Delhi), on policy, we think at least one vote for a rate cut is likely.”
Prior to moving to CPR, Bhattacharya was Senior Vice-President and Chief Economist at Axis Bank. He was previously with Unilever in India and with Infrastructure Development Finance Company (IDFC).
He was also part of the RBI’s Working Group on Monetary Policy (2010) and the Finance Ministry Group on Estimating Foreign Savings (2011).