RBI postpones MPC meeting scheduled for this week with three slots yet to be filled

MUMBAI: The Reserve Bank of India (RBI) deferred this week's scheduled Monetary Policy Committee (MPC) meeting a day before it was to start with the government not having finalised the three independent members of the six-member panel that sets policy interest rates. That's unlikely to disturb the RBI's market-related functioning as investors weren't expecting any interest rate action, as indicated in an ET poll of 20 market participants on the weekend.

This comes as the efficacy of inflation targeting, the key aim of the MPC, is being debated amid the collapse of growth.

Dates not announced
The central bank did not cite any reason for the postponement or say when the next meeting would take place. While there was speculation over the term of the outgoing members being extended, such an action might have been challenged as violative of the RBI Act, said a person who didn't want to be named.

The RBI's other activities such as market operations and liquidity measures will go on as normal as they do not need MPC approval.

"New members will take time to settle down and absorb the ongoing situation," said Naveen Singh, head of trading at ICICI Securities Primary Dealership. "Anyway, the market is expecting a status quo policy this time. Actionable measures like OMO (open market operations), OT (operation twist), liquidity are the RBI's prerogative with little intervention from the external members."

The government was expected to nominate three independent members to replace Ravindra Dholakia, Pami Dua and Chetan Ghate after their four-year term ended. Among those said to be in the reckoning as replacements were Ashima Goyal, Jayanath Verma, Shamika Ravi and V Ananth Nageswaran.

The MPC meeting set for September 29, 30 and October 1 is being rescheduled, RBI said in a release Monday. "The dates of the MPC's meeting will be announced shortly."

The MPC has six members with voting powers, three of them from the RBI. Apart from the governor, they are the deputy governor and executive director dealing with monetary policy. The other three members are nominated by the government. The governor has a casting vote in case of a tie. While the government hasn't said why there has been a delay, investors said there could have been some technical issues.

"One of the checkboxes is likely to have hit a hurdle, which the authorities are sorting out," said a senior executive at a large bank.

For instance, when Urjit Patel was nominated as a deputy governor, his citizenship was supposedly a factor the government had to consider. The independent members are critical as investors look for their conservative credentials since inflation targeting is the mandate of the MPC. The target is 4% with a two percentage point band on either side. This came into being in 2016 after years of debate as inflation accelerated to double digits and investors lost faith in the RBI's ability to maintain the value of the currency.