Govt to appoint new external members to MPC ahead of crucial rate meeting

By Ruchi Bhatia

India’s government will appoint new external members to the central bank’s monetary policy committee by October at the latest, people familiar with the matter said, shortly before a crucial meeting in which the MPC will face pressure to cut interest rates. 
 

The selection panel, comprising the governor of the Reserve Bank of India and government officials, will recommend probable candidates in the next two weeks, with an announcement likely by the end of September or early October, the people said, asking not to be identified as the discussions are private. 

The six-member MPC is made up of three external members and three RBI officials, led by Governor Shaktikanta Das. The external members, usually well-known economists with academic backgrounds or specialists in finance and macroeconomics, are appointed for a four-year term. The current terms for external members Jayanth Varma, Ashima Goyal and Shashanka Bhide, end on Oct. 4. The next scheduled rate decision is due on Oct. 9.

The six-member selection panel — made up of Das, Cabinet Secretary T.V. Somanathan, Economic Affairs Secretary Ajay Seth and other officials — will need to avoid a repeat of 2020, when a delay in the appointment of the external MPC members resulted in the RBI having to postpone its scheduled rate meeting. That added to policy uncertainty at the time and drew criticism from analysts.

Spokespeople for the Ministry of Finance and the RBI didn’t immediately respond to requests for information.

The appointment of a new MPC comes against the backdrop of a shift in global central bank policy. The Federal Reserve is expected to cut interest rates as early as September, prompting central banks elsewhere to take action to ward off market turmoil. In Asia Pacific, New Zealand and the Philippines have already reduced interest rates. 

The RBI has left its benchmark interest rate unchanged for more than 18 months already, with Das reluctant to ease policy until inflation settles around the central bank’s 4 per cent target. Two of the current external members, Varma and Goyal, had voted for rate cuts at the August policy meeting.

Most economists don’t expect the RBI to ease borrowing costs until the final quarter of this year, predicting it will likely move only after the Fed pivots. However, some say there are signs that consumer demand is waning and interest rates should be cut to support economic growth. 

The shake-up in the MPC also comes as the government begins the process of revising its consumer price index, with the possibility of a sharp cut in the weighting of food — a move that could curb inflation spikes in India going forward. 

The RBI’s inflation targeting framework is also up for review in March 2026, with growing debate within official circles over whether food prices should be excluded from the target.