RBI’s Rate Decision at Risk Due to MPC Vacancies Ahead of October Meeting - Read Here

The Reserve Bank of India (RBI) is facing a challenge ahead of its next Monetary Policy Committee (MPC) meeting, scheduled between October 7 and 9, 2024. The MPC is responsible for setting the country's interest rates, but with less than two weeks left, appointments for key external members have not been made. Three external members, whose terms expire on October 4, need to be replaced.

The Indian government must fill the vacancies before the MPC meeting begins. If not, the meeting could be delayed, similar to what happened in 2020 when the MPC meeting was postponed due to vacant posts. The panel that selects the new members is headed by cabinet secretary T.V. Somanathan.

The pressure is building as central banks worldwide, including in Switzerland and Norway, have begun cutting interest rates, following a 50 basis point rate cut by the US Federal Reserve. Although many central banks are lowering rates, most economists expect the RBI to maintain its current repo rate of 6.50% during the October meeting. A rate cut is predicted only in December, as India’s economy remains strong.

Inflation in India has fallen to 3.65% in August, below the 4% target. However, some members of the MPC remain cautious about food inflation and want to maintain the current rates to ensure inflation remains under control. The last time the RBI raised the repo rate was in February 2023.

A recent Reuters poll showed that over 80% of economists expect the RBI to hold the repo rate steady at the October meeting, while a few anticipate a rate cut in December if inflation continues to fall.

In summary, if the government does not fill the vacancies on time, the MPC meeting could be postponed, affecting the timing of future interest rate decisions.