RBI policy: Watch out for the sidelines

More than Tuesday's policy statement, the subsequent analysis could be the most important part of RBI Governor Raghuram Rajan's last policy review

The Reserve Bank of India (RBI) is unlikely to tinker with the prevalent interest rate in its third bi-monthly monetary policy on Tuesday. However, considering this will be Raghuram Rajan’s last monetary policy before he steps down next month, the event promises to attract eyeballs not only of analysts, but also the general public. 
 
The monetary policy document in itself may not contain much apart from the usual guidance about inflation and growth and global conditions, but there could be a few small paragraphs -- about monetary policy committee, goods and services tax, pay commission recommendations and possibly RBI’s strategy to redeem $20 billion worth of foreign currency non-resident bonds (FCNR) – that analysts and media will parse carefully for the subsequent question and answer rounds. 

 

 
At least one major issue is out of the way now following the government formal adoption of an inflation target of 4% (plus/minus 2%) for the next five years. This is a milestone and something that Rajan has been working relentlessly towards since becoming governor in September 2013. 

 
But there will be questions about Rajan’s take on RBI independence and his possible suggestions to his successor that the media will try to dig into. The issue has again assumed importance after Rajan’s predecessor D. Subbarao wrote in his tell-all book how government functionaries regularly intervened in RBI affairs. 

Since this will be Rajan’s last major interaction with the media as RBI governor, he is also unlikely be diplomatic in his answers. And the media representatives will be sure ask his opinion on a wide-range of issues not necessarily linked to monetary policy. 

Therefore, more than the policy statement, the post-policy analysis could be the most important part of the event. The press conference will be telecast live across all business channels and thereafter even a transcription will be available for minute dissemination. 
 
Rajan will also speak with analysts and give interviews to select media outlets. Overall, it is not the main event, but the sidelines that will be the focal point of the third bi-monthly monetary policy of the Reserve Bank of India on Tuesday.