rate cut: New MPC members may have least one favouring a cut, say economists

India’s newly-appointed monetary policy committee members may see at least one dissenter calling for a rate cut when the group meets next week, several economists said in separate research notes this week.

India’s government on Tuesday appointed Ram Singh, Saugata Bhattacharya and Nagesh Kumar as new external members of the Reserve Bank of India‘s rate-setting panel.

The reshuffle could change a recent split view within the six-member panel, where two external members voted for a rate cut in August on the argument that high inflation adjusted real rates could hurt growth.

The doves’ departure reduces chance of a cut next week, Shilan Shah of Capital Economics said in a note.

Though 80% of the economists polled by Reuters expect a status quo in the RBI’s October policy, calls for a cut or at least a change in stance have grown since the U.S. Federal Reserve began its rate cutting cycle last month.

“We expect the MPC to keep policy rates and stance unchanged next week, with at least one dissenting vote, likely from the new external members,” Barclays economists Shreya Sodhani and Amruta Ghare said. Several economists pointed to an opinion piece written by Bhattacharya in mid-August where he was in favour of rate cuts, suggesting he could be the dissenter. “Mr. Bhattacharya made an emphatic case for rate cuts back in August, although it remains to be seen how his views have evolved since,” economists Sonal Varma and Aurodeep Nandi at Nomura said.

The MPC, which consists of three RBI and three external members, is due to meet on Oct. 7-9. In its August policy meeting, the panel kept the repo rate unchanged at 6.50% for a ninth straight time.

“While government-appointed MPC members are usually perceived to be dovish, we believe the new members will remain data-dependent and focused on the inflation-targeting mandate,” Standard Chartered Bank economists Anubhuti Sahay and Saurav Anand said.

“Given the likely moderation in India’s growth and inflation, we expect them to support rate cuts starting in December,” they said.

Sodhani and Ghare said they expect the MPC to maintain its stance as ‘withdrawal of accommodation’ given surplus liquidity conditions, suggesting the central bank is more comfortable with higher liquidity than before.