New Delhi: The stance of monetary policy is supposed to provide guidance on where interest rates might go next. By attaching any of the three stances- accommodative; neutral; calibrated tightening to its policy, the Reserve Bank of India’s Monetary Policy Committee (MPC) can guide markets on where interest rates are likely to go in the near future. And yet, the policy stance has caused much trouble over the last few months. At the last three policy meetings, the MPC has changed the repo rate only once – in February while the stance has been changed twice. Economists see enough reason for the stance to be changed again on Thursday.
“I think the MPC will front-load monetary easing to expedite transmission. Either the repo rate will be cut by 25 bps or there will be a bigger cut of 50 bps with the stance being left unchanged at neutral,” said Rupa Rege Nitusre, group chief economist at L&T Financial Services. Should the committee loosen its stance to accommodative from neutral on Thursday – along with a rate cut, which seems to be a mere formality by now as it will be the third time in four meetings that the stance would have been changed.
That, irrespective of the data-dependent nature of monetary policy, is the definition of inconsistency. Or, as former RBI governor Raghuram Rajan put it several years ago, a policy flip-flop. Has the dependency on data, then, led to these policy flip-flops?