RBI repo rate meeting begins tomorrow; will new Monetary Policy Committee cut, hold or raise interest rates?

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Updated: Oct 06, 2020 12:11 PM

RBI MPC meeting has now been scheduled for October 7-9, following the reconstitution of the Monetary Policy Committee with three new members.

"Any shortfall in the maintenance of the 50 per cent LTV occurring on account of movement in the share prices shall be made good within seven working days," the RBI said."Any shortfall in the maintenance of the 50 per cent LTV occurring on account of movement in the share prices shall be made good within seven working days," the RBI said.

RBI Monetary and Credit Policy meeting has now been scheduled for October 7-9, following the reconstitution of the Monetary Policy Committee with three new members. Earlier, the Monetary Policy Committee (MPC) meeting was supposed to take place during September 29, 30, and 1 October 2020. After the Reserve Bank announced to postpone the MPC meeting, it added three new members to its MPC committee. Ashima Goyal, Jayanth R Varma, and Shashanka Bhide are the three members who replaced Chetan Ghate, Pammi Dua, and Ravindra Dholakia. The external members’ appointment is for a non-renewable four-year tenure, that is, till October 2024.

However, with a change in the structure of the Monetary Policy Committee, it is unlikely that the central bank will change its outlook. “We do not believe the new appointments dramatically change the near-term monetary policy outlook. In its last policy meeting, the RBI’s six-member monetary policy committee voted unanimously to hold interest rates,” said a report by Barclays.

Also Read: Govt’s investment proposals fall to 16-year low in second quarter; manufacturing attracts most funds

Room to cut rates further will likely open up only in the first quarter of the next fiscal, the report added. However, it is expected that there can be a one-off rate cut of 25 basis points in the February 2021 MPC meeting. Till then, the central bank may continue to ease financial conditions through liquidity and regulatory measures.

The restructuring of the MPC committee is likely to bring some new thinking to the Reserve Bank’s policy deliberations. The government has once again selected all three external members from academia. The new members belong to the fields of macroeconomics, agriculture, development economics, and financial markets. Meanwhile, the MPC kept the repo rate unchanged in the last meeting. It preferred to watch the movement of inflation before taking further steps towards a repo rate cut.

 

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