No MPC Meet By RBI Posts Lie Vacant

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What has happened?

On October 1, the Reserve Bank of India’s Monetary Policy Committee (MPC) was supposed to announce the country’s key interest rates and the monetary policy for the next two months.
“The meeting of the MPC during September 29, 30 and October 1 …is being rescheduled. The dates of the MPC’s meeting will be announced shortly,“
An RBI statement said, without ascribing any reason for the postponement.

The bi-monthly meeting was scheduled for September 29 to October 1.
The RBI postponed it as, govt failed to nominate its three members to the six-member panel.
The tenure of the three members appointed by the government in 2016 expired after the previous policy on August 6.

As per the RBI Act, the quorum for an MPC meeting is four,
In effect the committee cannot meet until at least one external member is present, in addition to the three RBI representatives.
If there’s a tie on any proposal, the RBI Governor holds the casting vote.

Prior to October 2016, the RBI Governor used to decide on policy rate.
Even though he was assisted by a team of officials from the central bank, the ultimate decision rested with the Governor.
In 2016, the government had provided statutory backing to the MPC by notifying amendments to the RBI Act, 1934.
The inflation target and tolerance band around it, and accountability with respect to failure to achieve the target, were notified by the government during May-August 2016.
It was for the first time that an explicit inflation target was given to the RBI, along with failure level.
Rate-setting decisions were now made through voting in the MPC rather than the Governor alone takinga call on these matters.
The RBI now releases both MPC resolutions and minutes of the minutes — providing a detailed review of the analysis and individual assessment of the members that went into framing of the policy.

RBI Governor Shaktikanta Das is the head of the MPC, while the Deputy Governor in charge of the Monetary Policy Department (Michael Patra) and the Executive Director looking after the monetary policy are members from the RBI side.
The three government nominees are selected by a committee formed by the government for a four-year term.
The three members whose tenure ended in August are:
Dr Chetan Ghate, Professor,
Indian Statistical Institute; Dr Pami Dua, Director, Delhi School of Economics,
Dr Ravindra H Dholakia, former Professor, IIM Ahmedabad.

The bi-monthly MPC meeting discusses the domestic and international scenario before finalising the repo and reverse repo rates.
If there is no consensus on the rate or policy, there will be voting process.
MPC members differed on a couple of occasions on the quantum of repo rate changes but eventuallywent by the majority decision.
Although the MPC slashed the key policy rate — repo rate — by 250 basis points to 4%,
The rate cut transmission has been rather slow with banks taking their time to pass on the benefits.

Interest rates play a crucial role in the economy.
Any delay in changing the rates will impact the economy as MPC sets the repo rate (the rate at which RBI lends funds to banks) and reverse repo rate (the rate at which the RBI borrows funds from banks).
The pandemic is still evolving and credit offtake has been sluggish.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said,
“The economy is facing a serious challenge and the RBI has been leading from the front with quick responses through rate cuts, injecting liquidity through open market operations and long-term repo operations and a variety of innovativetools to manage and ensure financial stability.
In this hour of economic emergency, the MPC has to be in place to formulate policy.
This delay could have been avoided.”