RBI Central Board discusses macro-economic developments, MPC

The Reserve Bank's Central Board today discussed macro-economic developments and constitution of Monetary Policy Committee (MPC), a broad based panel that would determine the benchmark interest rates.
The meeting, chaired by RBI Governor Raghuram G Rajan, also discussed RBI's budget among other issues, and reviewed the activities of the Board for Payment and Settlement System for the year ended March 2016.
Besides, the Board which met in Bengaluru after a gap of 7 years, discussed the draft Annual Report for 2015-16, RBI said in a statement.
The meeting was also attended by Government nominee director on the Central Board, Shaktikanta Das who is Economic Affairs Secretary, it said.

In a step towards operationalisation of MPC, Das had said recently that government will notify the rules "within few weeks" and thereafter appoint three government nominees.
Out of the six members of MPC, three will be from RBI -- the governor, who will be the ex-officio chairman, a deputy governor and an executive director. The other three members will be appointed by the government on recommendations of a search-cum-selection committee, which will be headed by the Cabinet Secretary.

MPC will set interest rates by a majority, with a casting vote for the RBI Governor in the case of a tie. Presently, the RBI governor enjoys overriding powers having a final say on monetary policy decisions.

Experts say that Cash Reserve Ratio will not be tinkered
with either as liquidity is sufficient.
"Nothing is going to change in this policy as CPI has not reduced to the level where the RBI wanted it to be. The market has already discounted that rate is not going to be cut this time," said a treasury head of a state-run bank.
"Even the liquidity condition in the system is sufficient, so CRR will not be altered," he added.
Another senior banker said that there are expectations that nothing is going to change as this is the last policy of the Governor and a rate cut is unlikely.

According to Bank of America Merrill Lynch, however, RBI is expected to cut key interest rates by 25 basis points in its third bi-monthly policy review for 2016-17 on August 9, if good rains damp pulse price inflation.
"With good rains, pulses' sowing for the kharif season has jumped 39 per cent above last year's sowing. This should pull down pulses prices by 20 per cent and cool CPI inflation to 5.1 per cent by March," it said.
DBS said, on the other hand, RBI may keep the key interest rates on hold in the upcoming policy meet as inflation for the second quarter has hastened to 5.7 per cent and July-August prints may also stay high.

The room for further easing by the Reserve Bank is dependent on the inflation path and make-up of the monetary policy committee, it said.