RBI may go for ‘Dovish hold’ on rates

NEW DELHI:  The Reserve Bank of India is expected to go for a “dovish hold” with unchanged rates and accommodative stance at the upcoming bimonthly monetary policy committee meeting on October 7.
“New external members give the MPC a dovish tilt... We believe that the new external members are more neutral-to-dovish in their policy views, which will tilt the overall MPC in a dovish direction,” analysts at Nomura said.

This implies there will not be any immediate impact on the policy given the current high level of inflation, and the panel will go for a “dovish hold” with unchanged rates and accommodative stance at the upcoming review. The meeting was postponed from last week when it was scheduled, as as appointment of independent members had been delayed and ths meant there was insufficient quorum for the meet.

However, late on Monday night, with the  government clearing the  appointment of three economists , Ashima Goyal, Jayanth R Varma and Shashanka Bhide, the meeting has now been rescheduled to October 7-9. The external members are appointed by the central government from amongst persons of ability, integrity and standing, having knowledge and experience in the field of economics, banking, finance or monetary policy.

The government moved the interest rate setting role from the RBI Governor to the six-member MPC in 2016. The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower of 2 per cent, as per an agreement with the government, with a tolerance of two percentage points either ways. Currently, Consumer Price Index-based inflation has been coming above the six per cent tolerance but the deceleration in growth has led to many voices supporting rate cuts and easing of measures to support the economy.