(Bloomberg) -- The appointment of three new members to India’s central bank monetary policy committee is unlikely to prompt an interest rate cut at next week’s crucial policy meeting, economists said.
India’s government appointed three new external members to the MPC on Tuesday, well-known economists from the academic and finance world who will join three Reserve Bank of India officials on the committee led by Governor Shaktikanta Das. The MPC is scheduled to announce its next rate decision on Oct. 9.
Economists say the inclusion of the new external members doesn’t change their expectations that the MPC will likely keep its benchmark interest rate unchanged again next week. Das, who has the deciding vote on the six-member MPC if there’s a deadlock, has repeatedly said he wants to see inflation at the 4% target level on a sustainable basis before considering easing.
“We expect the MPC to keep policy rates and stance unchanged next week, with at least one dissenting vote, likely from the new external members,” Barclays Plc’s analysts Shreya Sodhani and Amruta Ghare wrote in a note.
Bhattacharya, a former chief economist at Axis Bank Ltd., as recently as August argued in an opinion article for the RBI to cut interest rates. He’s also been quoted in local media saying the inflation trajectory was “manageable,” but the room to lower interest rates will open up only in December.
The new MPC members were appointed for a four-year term to replace outgoing external members Ashima Goyal, Jayanth Varma and Shashanka Bhide. Goyal and Varma voted for rate cuts in the past two MPC meetings.
Das and the other two RBI officials on the MPC — Deputy Governor Michael Patra and Rajiv Ranjan, an executive director of the monetary policy department — have consistently voted to keep rates unchanged, highlighting risks from high food prices.
Inflation eased below the 4% target in July and August mainly due to statistical reasons, with the RBI expecting it to rebound again in September. Economists surveyed by Bloomberg predict the RBI will likely cut interest rates from December.
“The central bank’s resolve in addressing food price inflation and preventing an un-anchoring in inflationary expectations is likely to see the MPC members lean towards a pause in October, with a softening in stance towards the December rate review,” said Radhika Rao, an economist at DBS Group Holdings.
The overhaul of the MPC comes amid a wave of global easing following the US Federal Reserve’s half-point rate cut last month.
Sonal Varma, an economist at Nomura Holdings Inc., is one of the few economists predicting a rate cut next week, arguing that monetary policy acts with a lag and there’s no advantage to waiting to lower rates as inflation slows and growth moderates.
“Ultimately, the decision lies with the RBI Governor, who has the casting vote, in case of a tie,” she said. “The October policy outcome will likely be driven more by the thinking of internal RBI MPC members, than the external MPC members.”
Here’s more about the new MPC members:
Saugata Bhattacharya
He’s an economist with over three decades of experience in economic and financial markets analysis, policy advocacy, infrastructure and project finance. Prior to his current role, he served as the chief economist at Axis Bank.
Nagesh Kumar
He is a well-known trade economist and has previously served as a director at the United Nations Economic and Social Commission of Asia and the Pacific. Kumar has written extensively on India’s approach to building more manufacturing capacity and believes that right policies can help the South Asian nation emerge as a global manufacturing hub.
Ram Singh
He holds a post-doctorate degree in economics from Harvard University, with contract theory, public economics, public private partnerships, and law and economics as key research interests. Singh also taught at the Brown University, University of Hamburg and has been Commonwealth Fellow at the London School of Economics.
--With assistance from Ronojoy Mazumdar and Siddhartha Singh.
(Updates with comments from economists.)
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