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New members give Monetary Policy Committee a ‘dovish tilt’: Nomura

MUMBAI: The appointment of three new external members to the RBI‘s Monetary Policy Committee by the government gives the rate-setting panel a “dovish tilt”, a Japanese brokerage said on Tuesday.

The government appointed Ashima Goyal, Jayanth R Varma and Shashanka Bhide on Monday, after a delay that had forced the RBI to postpone the committee’s bi-monthly meeting last week. The newly constituted panel will have its maiden meeting from Wednesday and the decision will come on Friday.

“New external members give the MPC a dovish tilt… We believe that the new external members are more neutral-to-dovish in their policy views, which will tilt the overall MPC in a dovish direction,” analysts at Nomura said.

They, however, added that there will not be any immediate impact on the policy given the current high levels of inflation, and the panel will go for a “dovish hold” with unchanged rates and accommodative stance at the upcoming review.

The analysts went into previous writings and statements of all the new appointees for coming to the conclusion and pointed out that the views of Bhide, a senior advisor with think-tank National Council of Applied Economic Research, are not well known.

Goyal, a professor at the city-based Indira Gandhi Institute of Development Research, had described the pre-COVID-19 decision to hold rates in December 2019 as “shocking”, they said. He also stressed the need to focus on the core inflation rather than fretting about household expectations, the analysts added.

Similarly, Varma, a professor of finance and accounting at the Indian Institute of Management, Ahmedabad, had described the RBI’s rate hikes in mid-2018 as a “mistake that took too long to correct” and supports unconventional monetary policy steps, they said.

Bhide is a real economy specialist and has worked mostly on agriculture and rural economy, and was placed in the “neutral” camp because of that.

Nomura also classified Governor Shaktikanta Das and Goyal as the most dovish, and Deputy Governor Michael Patra as the most hawkish.

The RBI, which switched to the MPC model of rate setting in 2016, has been given a target of keeping inflation at 4 per cent till March 2021, as per an agreement with the government, with a tolerance of two percentage points either ways.

Currently, Consumer Price Index-based inflation has been coming above the six per cent tolerance but the deceleration in growth has led to many voices supporting rate cuts and easing of measures to support the economy.



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