The delay by the government in appointing new members to the Monetary Policy Committee (MPC) in time for the October Monetary Policy, which now stands postponed, sends out wrong signals, say market watchers and experts. The lack of quorum in the MPC forced the Reserve Bank of India on Monday to postpone the three-day meeting, which was scheduled to start from September 29. No new dates have been announced for the meeting.

Of the six-member MPC, three are from the RBI, including Governor Shaktikanta Das, Deputy Governor Michael Debabrata Patra, and Executive Director Mridul Saggar.

The other three Members of the MPC are appointed by the Central Government for a four-year term.

On September 22, 2016, the Appointments Committee of the Cabinet (ACC), headed by Prime Minister Narendra Modi, approved the appointment of Chetan Ghate, (Professor, Indian Statistical Institute), Pami Dua (Director, Delhi School of Economics) and Ravindra H. Dholakia (Professor, Indian Institute of Management ,Ahmedabad) as external members on the MPC.

Also read: RBI postpones MPC meeting scheduled to begin tomorrow

 

The three members stepped down in August though their term ends in September.

"The non-appointment of MPC members smacks of incompetence, given that the government had plenty of time to appoint new members and was well aware of the deadline. It also knew that the tenure of the exiting members could not be extended and that it was crucial that these appointments were made in a timely manner. While the markets have ample faith in the RBI and hence will not overreact, this sends a very wrong signal to investors,” said Ananth Narayan, Professor at SPJIMR

Status quo on rates likely

Experts say that while the MPC holding rates amid rising inflation was widely expected, the committee’s view on inflation and growth trends and, more importantly, its plan to monetise the rising government debt was keenly awaited.

The postponement of the MPC meeting undermines the credibility of the institution of the MPC that should work with clock-like precision, according to experts and economists.

“Delay in the MPC meeting does not materially change the decision that is widely expected to be status quo. The eventual appointment of external members will not alter the decision on the rate action as the RBI is empowered to take a call given the abundant technical expertise that it has on its own even on the MPC Board. But still the market looks to the central bank for its expectations on inflation and liquidity which is critical.

The delay in the MPC composition and hence the rate action does not set a good precedent for a central bank,” says Soumya Kanti Ghosh, Group Chief Economic Advisor to State Bank of India.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the economy is facing a serious challenge and the RBI has been leading from the front with quick responses through rate cuts, injecting liquidity via OMOs, LTROs and a variety of tools to manage and ensure financial stability. “In this hour of economic emergency, the MPC has to be in place to formulate policy. This delay could have been avoided," he said.

Inputs from Shishir Sinha in New Delhi

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