Raghuram Rajan to make his valedictory policy review before the MPC’s take over

Tomorrow’s bi-monthly monetary policy review by the outgoing Governor Raghuram Rajan is going to be the last one for a ‘powerful’ RBI Governor. As of now, the Governor has the veto power while taking interest rate policy decisions.

 But under the proposed MPC (Monetary Policy Committee) format, the Governor has only a casting vote. This means that tomorrow’s policy declaration will be the last one where Governor has the ultimate say in repo rate policy whatever may be the stand of other members.

Government has already announced the formation of the MPC and it is expected that the next monetary policy decision will be taken by the MPC in early September.

In the MPC, there will be six members – three each from the RBI and the government.

Another interesting turn of the event that sets tomorrow’s policy declaration is the rising retain inflation. The CPI has reached 5.77% in June making it closer to the upper limit of 6% set under the new inflation targeting framework.

Reghuram Rajan’s last policy revision may not touch the repo rate of 6.50% set in April this year. At the same time, looking into the rising inflationary trend, it will not be surprising if the Governor makes a rate hike as a bailout intervention. Here, a 25 bps increase cannot be ruled out if the Governor thinks like an orthodox monetary economist. 

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