MUMBAI: The government has finally appointed three economists — PMEAC member Ashima Goyal, NCAER’s Shashanka Bhide and IIM-Ahmedabad professor Jayanth Varma — as new members of the RBI’s monetary policy committee (MPC) to decide on interest rates.
The much-delayed appointments, which resulted in the postponement of the panel’s crucial meeting last week, came even as the government is yet to name a successor to SBI chairman Rajnish Kumar who will retire on Wednesday.
The central bank, which was forced to postpone the meeting in the absence of three external members, will announce fresh dates for the MPC meeting over the next few days. The panel is chaired by RBI governor Shaktikanta Das with deputy governor Michael Patra and the executive director in charge of monetary policy as its members. The new members nominated have been given a four-year term.

Like MPC, SBI too faces uncertainty over leadership at a time when the country’s largest lender, which accounts for a fourth of banking activity, is set to decide on restructuring loans worth thousands of crores under the one-time restructuring scheme. SBI plays a key role in large-scale loan restructuring, where there are multiple banks involved.
In most of these cases, it is SBI that determines the course of action and a delay in appointment could impact loan resolutions. The government has been slow in making crucial financial sector appointments with a deputy governor’s post in the RBI too is lying vacant for months.
While the task of the MPC is merely to fix interest rates to keep inflation under check, this policy was crucial as it has to do deal with unprecedented challenges, which include inflation triggered by supply-side constraints, a record fiscal deficit, an oversized government-borrowing programme, and uncertainty over how the deficit will be bridged. While the committee members are economists, who are familiar with the macroeconomic situation, being part of the MPC gives them fresh insights from the central bank.
The government has come under a lot of criticism for not being able to appoint MPC members on time. The three external members of the MPC — Chetan Ghate, Pami Dua, and Ravindra Dholakia — were given a four-year term when they were appointed in 2016 and their last date in office was known on the date of appointment.
According to central bank watchers, the delay is not because of extraneous reasons, rather it is due to the due diligence process that has to be performed before any key appointment. Even in the case of the appointment of SBI chairman, the Bank Board Bureau had recommended SBI MD Dinesh Khara as a successor on August 29.
A delay in appointments also keeps financial markets on the edge. The MPC appointments will impact the pricing of lakhs of crores of government bonds. If the members are seen to be fiscal hawks, bond prices would fall as this would reduce the chances of the RBI cutting interest rates. Similarly, the new CEO’s appointment at SBI plays a key role in the financial performance of the bank.
Typically, outgoing CEOs try and present the best numbers to leave on a high note, whereas new appointees depress numbers through high provisions as the finance ministry judges their performance based on growth over the previous year.



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here