RBI postpones MPC meeting after failure to appoint new members

The Reserve Bank of India has postponed this week’s monetary policy committee (MPC) meeting after the government failed to fill three vacancies in time.

The MPC meeting had been due to commence tomorrow (September 29), with the policy decision set to be unveiled on October 1, but the RBI said today that the meeting was being rescheduled, with new dates to be announced “shortly”.

The four-year terms of all three of the external members of the committee – Chetan Ghate, Pami Dua and Ravindra Dholakia – lapsed after the RBI’s last MPC meeting, in August. The RBI act states that MPC members’ terms are non-renewable, and the committee requires at least four members for a quorum.

The three external members of the committee are appointed by the government. Some Indian commentators noted that the government had had four years to think about who to appoint, but had still failed to reach a decision.

The other three members of the committee comprise the RBI governor, a deputy governor and a third RBI official (currently executive director Mridul Saggar). The governor has the casting vote in the event of a tie.

The postponement comes at a difficult time for the Indian economy, with the country currently one of the worst affected by the Covid-19 pandemic. Many expect the government will have to further increase its borrowing this year, despite an already heavy debt load, raising the pressure on the RBI to keep policy loose.

The RBI, however, is already having to contend with a surge in inflation, which breached the upper limit of the central bank’s 2–6% tolerance band earlier this year. Consumer price index (CPI) inflation was 6.7% in August, down from 7.2% in April, a month the central bank considers anomalous because of the effects of the coronavirus.

“The MPC is conscious that its primary mandate is to achieve the medium-term target for CPI inflation,” the RBI said in its policy statement after the August 4–6 meeting, when it chose to keep the policy rate on hold. Policy-makers noted the challenging trade-off between rising prices on the one hand and an economy facing “unprecedented stress” on the other.

At the meeting, then-MPC member Ghate cautioned that the RBI should not forget its inflation mandate. “Future MPCs should not go soft on inflation,” he warned, according to the meeting’s minutes.

The central bank chose not to publish forecasts at the August meeting because of the high levels of uncertainty. New forecasts had been expected at this week’s meeting.