The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) met on Thursday to discuss and finalise the report it will present to the Central government on why it failed to contain the retail inflation within the target band of 2-6 per cent for three consecutive quarters.
As per reports, the RBI report will be presented to the government as per the Reserve Bank of India Act, which requires the MPC to report to the government reasons why it failed to meet the retail inflation target, and also suggest measures to bring it down to 4 per cent.
The MPC met for an off-cycle meeting on November 3 to finalise its official explanation of high inflation numbers. The meeting was called under the provisions of Section 45ZN of the RBI Act 1934. 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.
As per news reports, this is for the first time that the central bank has been asked to give an explanation to the government about the high inflation figures. The monetary policy framework came into effect in 2016. The retail inflation based on Consumer Price Index (CPI) has been above 6 per cent since January 2022, and touched its highest level of 7.41 per cent in September.
“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.
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On Wednesday, speaking at a conference, Das defended RBI's actions and said that the Indian economy would have taken a "complete downward turn" if it had started to tighten interest rates earlier. He added that the central bank has been raising interest rates since May to contain the high inflation in view of the Russia-Ukraine war and subsequent disruptions in the global supply chain.
He also defended the RBI's move to not make the letter, to be written to the government, public. He said that not making the letter public does not compromise transparency and that nothing in the law gives him the authority, privilege, and luxury of sharing privileged communication between the government and the central bank.
The next bimonthly meeting of MPC is scheduled to be held from December 5 to 7, where a rate hike is expected.