Tomorrow‘s RBI policy meet has many firsts to its credit. Decision-making on key rates will be in the hands of 5 wise men and a woman. The mint-condition Monetary Policy Committee, constituted last week, will exercise its franchise â€“ more democratically now. In case of a tie, the final vote will be cast by the RBI governor.
Tomorrow’s RBI policy meet has many firsts to its credit.
Decision-making on key rates will be in the hands of 5 wise men and a woman. The mint-condition Monetary Policy Committee, constituted last week, will exercise its franchise – more democratically now. In case of a tie, the final vote will be cast by the RBI governor.
It will be Urjit Patel’s maiden sortie as governor of RBI.
The announcement of the policy review will come at 2.30 pm instead of the usual 11.00 am. The press conference will follow at 2.45 p.m and go on till 3.15 pm – which gives markets only 15 minutes to react to statements from Patel.
The RBI governor’s decision was the only cue that markets reacted to so far. But now, they will have to contend with a panel’s collective decision, which may not be unanimous always. So, dissenting voices, if any, and reasons behind them will also play a key role in market swings.
The trio of academics in the MPC panel will have their tasks cut out. Chetan Ghate, a professor from the Indian Statistical Institute, New Delhi, is believed to be a ‘hawk’ as he is focussed on inflation targeting. Ravindhra H Dholakia, a professor of Economics at the Indian Institute of Managment, Ahmedabad, is a dove. He believes in ‘deliberate disinflation’.
And, finally, we have Pami Dua, Director, Delhi School of Business, is an unknown voice.
The chances are the trio will have a consensus, with little room for bickering, since they have been fastracked into decision-making roles.
Who Holds the Cards?
The floor will belong to the RBI when its members address the press conference. The jury is still out on whether the academics will participate in an interaction with the media. Going by tradition elsewhere, the central bank chief will take questions.
Consumer inflation fell to a five-month low – to 5.05 percentage -- in August aided by smaller rises in food prices. While it makes the case for an interest rate cut tomorrow, the chances are that Patel will stand pat. And it will be in line with RBI’s stated policy of maintain 4 percent inflation target for 2017-18. It wil also give more time for banks to pass on earlier cuts to borrowers.
Tone of the Statement
It will be safe to say that RBI governor’s tone will neither be unabiguously dovish nor a straightforward hawkish one. The statement may not be as clear as before. Let’s not forget that central bank statements are always hedged and this could be even more so.