There is a possibility that Tuesday's monetary policy statement by Raghuram Rajan might be the last to be made by an RBI governor. With the government set to put in place a monetary policy committee, future announcements are likely to be made by the panel which would be dominated by RBI officials.
Future statements will not have the stamp of the governor. Finance minister Arun Jaitley in the Budget had said that the monetary policy will have six members, with three each being nominated by the government and the RBI. While the monetary policy committee's decision will be binding on the RBI, the governor will have a casting vote in case of a tie.
RBI governor Raghuram Rajan had cited three virtues of the monetary policy committee over the present system. "First, a committee can represent different viewpoints and studies show that its decisions are typically better than an individual's. Second, spreading the responsibility for the decision can reduce the internal and external pressure that falls on an individual. Third, a committee will ensure broad monetary policy continuity when any single member including the governor changes."
Meanwhile, Rajan is widely expected to hold rates on Tuesday. The policy is much-awaited because it would provide an indication to a future rate cut trend. According to HSBC's chief economist Pranjul Bhandari, rates are likely to be kept on hold as the monsoon holds the key.
"We expect the RBI to be in a wait-and-watch mode in the upcoming policy meeting. We continue to hold on to our call for a 25bps rate cut in August, on the back of our assumption that early rains will be adequate. By then, most of the other summer questions should have also found an answer," said Pranjul Bhandari, chief economist, HSBC India, in a report.
Besides the monsoon, the other uncertainties that the RBI might wait to see unfold are: US Fed's decision on rates and the impact of the Brexit vote. "In the past policy meeting, the central bank tried to address two key issues—tight liquidity and weak monetary transmission. While the liquidity deficit has remained within the comfort zone of the RBI, the money transmission hasn't shown improvement," said Devendra Kumar Pant, chief economist, India Ratings.