• The Reserve Bank of India's Monetary Policy Committee (MPC) is expected to maintain policy rates in their upcoming meeting.
• The decision is influenced by India's economic state, including inflation rate and GDP growth, and global economic events.
• The committee's composition change could bring new perspectives, but significant change in the meeting's outcome is unlikely.
• The MPC's cautious approach, current economic conditions, and historical stance suggest a commitment to maintaining economic stability amidst global uncertainties.

The Reserve Bank of India's Monetary Policy Committee (MPC) is set to convene from October 7-9, a meeting that has garnered significant attention from industry experts and market watchers. The consensus among these experts is that the MPC is likely to maintain the status quo on policy rates, a decision influenced by a multitude of factors, both domestic and global.

The MPC's decision-making process is guided by the current state of the Indian economy, particularly the inflation rate and GDP growth. Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance Company, has expressed the belief that the MPC will continue to hold the policy rates steady.

This is primarily because the committee wants to ensure that the Consumer Price Index (CPI) inflation is under control in a durable manner and is not susceptible to intermittent fluctuations due to food inflation.

India's GDP growth, while modest at 6.7% in the first quarter, is not consistently falling. This growth rate was primarily driven by an adverse base effect and a slowdown in government-driven investment expenditures due to the general elections.

Domestic Factors and Global Cues

However, with the resumption of government capital expenditure in the second quarter, GDP growth numbers are expected to align with RBI projections. This stable growth, coupled with the need for durable control over inflation, supports the MPC's likely decision to maintain the status quo on policy rates.

The MPC's decision is also influenced by recent global economic events, particularly the US Federal Reserve's rate cut. The question on everyone's mind is whether the RBI will follow the path shown by the Fed by initiating a rate cut cycle or continue to maintain the status quo on both the policy rates and stance.

However, the MPC's cautious approach, as explained by Banerjee, suggests that a shift to a neutral stance isn't completely ruled out. A dovish tone in the governor's commentary could also set the direction moving forward.

The MPC is also expected to deliberate upon global factors such as growth inflation behaviour in developed economies, their rates actions happened in the immediate past, and the quantum of rate actions expected in the near future amidst uncertain, nonlinear forward guidance on rate cuts coming from them indicating major challenges in store.

Historical Stance and Committee Reconstitution

The MPC's decision will also be influenced by the reconstitution of the committee with the appointment of three external members. This change in the committee's composition could potentially bring new perspectives to the table, but it is unlikely to result in any significant change in the meeting's outcome.

Historically, the MPC has consistently advocated for a restrictive policy until inflation aligns durably towards the 4% target. This historical stance, coupled with the current domestic growth inflation dynamics and higher near-term inflation projection, suggests that the internal members are expected to stay tuned on extended policy rate hold with no urgency of immediate easing to support growth.