Insipid fare from the monetary policy committee minutes

The biggest hole in the minutes was the absence of detailed forecasts on growth, inflation and other metrics from each member


The members who flagged the upside risks to inflation were governor Urjit Patel and RBI executive director Michael Patra. Both Ravindra Dholakia, professor at the Indian Institute of Management, Ahmedabad, and Pami Dua, director at Delhi School of Economics, leaned heavily on the sputtering recovery in growth and the slack in the economy. Photo: Pradeep Gaur/Mint
The members who flagged the upside risks to inflation were governor Urjit Patel and RBI executive director Michael Patra. Both Ravindra Dholakia, professor at the Indian Institute of Management, Ahmedabad, and Pami Dua, director at Delhi School of Economics, leaned heavily on the sputtering recovery in growth and the slack in the economy. Photo: Pradeep Gaur/Mint

The seven-page minutes of the first meeting of the country’s maiden monetary policy committee (MPC) was replete with obvious statements, and bereft of details and analytics. The minutes gave a reproduction of the resolution of MPC and the vote of each member that was already in the public domain earlier this month.

The biggest hole in the minutes was the absence of detailed forecasts on growth, inflation and other metrics from each member.

It also did not give any inkling of what the members think will happen over the next year or so. In sharp contrast are the detailed numerical forecasts given by the Federal Open Market Committee of the US Federal Reserve.

Further, the MPC minutes state that “extensive discussions” took place on monetary policy (indeed it was a two-day meeting). There is no indication of what these discussions were. Which members felt growth is more important and who did not. Was there a debate and did any member acquiesce or accept a different opinion? Was Reserve Bank of India (RBI) governor Urjit Patel able to sway opinion? More importantly, what led to the unanimous vote for a rate cut in the end?

To be fair, the minutes do have a detailed statement by each of the members and this was the only part that provides a glimpse into the mind of the committee.

Reading through the statements provides a clear understanding of which members belong to either the hawk camp or the dove camp. The members who flagged the upside risks to inflation were governor Patel and RBI executive director Michael Patra. Both Ravindra Dholakia, professor at the Indian Institute of Management, Ahmedabad, and Pami Dua, director at Delhi School of Economics, leaned heavily on the sputtering recovery in growth and the slack in the economy.

Sample this from Patra’s statement. “It is crucial, however, to step up vigil around the upturn in inflation projected in the last quarter of 2016-17 to guard against any risk to the target.” The one from Patel reads: “Therefore, while our model-based projections indicated upside risks to the target, a calibrated policy judgement was warranted, given that some space for policy action had opened up with the fall in inflation in the August reading. Nonetheless, inflation outcomes in Q4 will have to be carefully and continuously monitored as upside risks, albeit lower now than before, persist.”

This statement by Dholakia shows a clear leaning towards growth: “Since there is substantial under-utilisation of capacity in the system, I do not see major risk to inflation if the output gap closes fast.” Dua’s statement also plays the same beat. But in the absence of the data or the forecasts that backed these statements, it is futile to ponder what MPC would do next. Minutes such as these cannot achieve the objective of shaping market expectations.

Do the minutes provide a better appreciation of the evolving monetary policy stance or even the issues involved? Do they provide the market with multiple perspectives of the members? The answer to these is a clear No.

To be fair, MPC is in its infancy. As it conducts more meetings and evolves, hopefully the minutes too will evolve into a more nuanced and detailed version that answers many questions rather than leave a lot unsaid. The markets could do well to skip reading this one.

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