Reserve Bank of India (RBI) Governor Shaktikanta Das
Credit: PTI Photo
By Anup Roy
RBI watchers are getting anxious about who will decide interest rates in two week’s time, a crucial meeting as a wave of global easing kicks off.
The contracts of three external members of the Reserve Bank of India’s monetary policy committee will expire on Oct 4, just days before the MPC is expected to meet and make its rate decision on Oct 9. A government-appointed selection panel hasn’t disclosed who the likely candidates are or when they will release the names of the new MPC members.
A delay in the appointments risks a repeat of 2020, when the RBI had to postpone its rate decision because the new committee members hadn’t been appointed in time. Looming in the background is also uncertainty over who will lead the RBI from next year, with the contracts of both Governor Shaktikanta Das and his deputy in charge of monetary policy, Michael Patra, coming to an end in coming months.
“Extensions and reappointments should be concluded and announced well ahead avoiding last minute delays. Unwarranted suspense in critical appointments is unsettling and distracting,” said Shubhada M Rao, founder of QuantEco Research, based in Mumbai. “This becomes relevant especially for the financial markets that seek signals around policy continuity,” she said.
The RBI’s policy committee is made up of three external members — usually well-known economists from the academic or finance worlds — and three RBI officials, comprising the governor, the deputy governor in charge of the monetary policy, and another official, typically the executive director of the monetary policy department.
Das’s contract — already extended once by three years — comes to an end on Dec. 9 and Patra finishes his term on Jan. 14. Neither the government nor the RBI have signaled if they will remain in their posts.
MPC Doves
The external MPC members who end their terms next month have been more dovish than their RBI counterparts in recent rate meetings. Both Goyal and Varma voted for rate cuts in the past two meetings. Bhide raised concerns about the impact of high rates on economic growth, even though he voted in line with RBI officials.
Analysts say India should follow other central banks in having a more transparent process in selecting key candidates. At the Bank of England, for example, four external MPC members are appointed through an open and public process where the applicants are known before the selection is made.
“Why would there be so much of secrecy” about the appointments at the RBI, asked Amol Agrawal, who teaches economics at Ahmedabad University. “They are external members, they cannot be appointed like insiders. What is the big deal in not naming the members, and not following an open, transparent process?”