Changes in the Monetary Policy Committee Before the RBI Meeting: Government Appoints 3 New Members; Meeting Scheduled for October 7-9
The government has appointed three new external members to the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Tuesday, including Ram Singh, Sougata Bhattacharya, and Nagesh Kumar. The MPC consists of six members, among whom are the Governor of the central bank, Shaktikanta Das, Deputy Governor Michael Patra, and Executive Director Rajiv Ranjan.
The central government appoints three external members for a term of four years. Currently, the external members of the MPC include Professor Ashima Goyal, Professor Jayant Varma, and senior advisor Shashank Bhide from New Delhi. Their term is set to conclude this week.
Ram Singh is the Director of the Delhi School of Economics, while Dr. Nagesh Kumar is the Director and Chief Executive of the Institute for Studies in Industrial Development. Sougata Bhattacharya is an economist.
MPC Meeting Scheduled for October 7-9
The meeting of the RBI Monetary Policy Committee (MPC) is scheduled to take place from October 7-9. Under the chairmanship of Governor Shaktikanta Das, the committee will make decisions regarding interest rates.
The last meeting was held in August, during which the committee did not make any changes to the rates for the ninth consecutive time. No changes to the interest rates are expected in the upcoming October meeting.
RBI Governor Shaktikanta Das will provide information about the meeting’s decisions on October 9. These meetings occur every two months. The last increase in rates by 0.25% to 6.5% was made by the RBI in February 2023.
U.S. Federal Reserve Cuts Interest Rates by 0.5%
On September 18, the U.S. Federal Reserve reduced interest rates by 0.5%. This marked the first rate cut in four years, bringing interest rates to a range of 4.75% to 5.25%.
As the largest economy in the world, every significant decision made by its central bank has a global impact on economies around the world.
RBI Has Increased Interest Rates by 1.10% Five Times Since 2020
The Reserve Bank of India (RBI) reduced interest rates twice by 0.40% during the COVID-19 pandemic (from March 27, 2020, to October 9, 2020). Following this, in the subsequent ten meetings, the central bank raised interest rates five times, made no changes on four occasions, and decreased them by 0.50% once in August 2022. Before the pandemic, the repo rate was at 5.15% on February 6, 2020.
Possible 0.50% Rate Cut in India by March 2025
Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, has indicated that India could see a 0.50% rate cut by March 2025. The RBI has not made any changes to interest rates since February 8, 2023, with the current repo rate standing at 6.50%.
Vijay Bharadiya, founder of Wolffort Financial Services Limited, noted that such a rate cut would be a bold move and could encourage the Reserve Bank of India (RBI) and other global central banks to adopt a softer monetary policy stance.
Policy Rate as a Powerful Tool Against Inflation
Central banks have a powerful tool in the form of the policy rate to combat inflation. When inflation rises, the central bank tries to reduce the flow of money in the economy by increasing the policy rate.
If the policy rate remains high, loans that banks obtain from the Reserve Bank become more expensive. Consequently, banks pass on these costs to their customers, making loans more expensive. This reduces the flow of money in the economy. When the flow of money decreases, demand falls, leading to a reduction in inflation.
Conversely, when the economy is going through a downturn, there is a need to increase the flow of money for recovery. In such cases, the central bank lowers the policy rate, making loans cheaper for banks and, in turn, for customers as well.
