The Reserve Bank of India (RBI’s) rate setting panel met on Thursday to discuss and draft a report for the government on why it failed to keep retail inflation below the target of 6 per cent for three consecutive quarters since January this year, according to the RBI release.
“A separate meeting of the Monetary Policy Committee (MPC) was held on November 3, 2022 to discuss and draft the report to be sent to the Government by the Reserve Bank of India (RBI) under the provisions of Section 45ZN of the RBI Act, 1934 and Regulation 7 of RBI MPC and Monetary Policy Process Regulations, 2016,” the central bank said in a statement.
The meeting was chaired by RBI Governor Shaktikanta Das and attended by all MPC members — Michael Debabrata Patra, Rajiv Ranjan, Shashanka Bhide, Ashima Goyal, and Jayanth R Varma.
India’s retail inflation has stayed above the upper band of the RBI’s target level of 2-6 per cent in each month this year. Despite a total of 190 basis points of interest rate increases since May, retail inflation edged up to 7.4 per cent in September, continuing its streak of nine consecutive months. The central bank’s forecasts suggest price pressures will remain on the higher side for the rest of the year.
This is the first time the RBI is writing such a letter to the Centre after the country adopted a flexible inflation-targeting arrangement. In 2016, they formed a committee to set interest rates within the prescribed limit. In the letter, the MPC shall detail its measures to bring down inflation. Section 45ZN of RBI Act deals with failure to maintain the inflation target.
The RBI Act requires the central bank’s MPC to report to the government reasons for failure to meet the retail inflation target as well as measures to bring it at 4 per cent with a margin of 2 per cent on either side. The meeting was called under the provisions of Section 45ZN of the RBI Act 1934.
Governor Das in a meeting on Wednesday said the economy is growing steadily, drawing strength from its macroeconomic fundamentals and buffers. Das, while speaking at the annual FIBAC conference of bankers, defended the RBI’s handling of the inflationary issue, saying that taking action on inflation too soon would have had a significant negative impact on the economy and people.