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The Reserve Bank of India's monetary policy committee met to finalise the report for the government on reasons behind failure to meet inflation target for three straight quarters since January. Reserve Bank of India (RBI) governor Shaktikanta Das defended the central bank's policies vis-a-vis inflation during the ongoing MPC meeting. Das said had the RBI began tightening policy rates in haste, the economy could have taken a "complete downward turn."
The Reserve Bank of India's monetary policy committee met to finalise the report for the government on reasons behind failure to meet inflation target for three straight quarters since January. This is the first time that the RBI had to give an explanation to the Centre since the monetary policy framework came into effect in 2016.
The MPC is held under Section 45ZN of the RBI Act amid rising inflation levels. This section focuses on failure to bring inflation within target. According to RBI, the failure to meet inflation targets is either overshooting or undershooting the upper and lower tolerance bands. In this off-cycle meeting, the Reserve Bank of India will draft a report on bringing inflation within target levels and also on reasons behind failure to achieve it.
This report will focus on the reasons behind failure to achieve inflation target, remedial actions proposed and estimated time-period of achieving inflation target. The central bank will not share the details of the report immediately.
While CPI inflation hovered around 6 per cent in the first 9 months of 2022, CPI inflation stood at 7.4 per cent in September. (Read more)
Here are live updates on the ongoing RBI MPC at Business Today.In
Karan Desai, Founder - Interface Ventures
"The MPC today was all about giving the central government comfort and visibility on the RBI’s efforts to reign in inflation and bring it back closer to the target 4% mark; it has consistently breached the upper tolerance threshold of 6% for the last 3 quarters running. Driven by the war in Ukraine, with surging inflation on account of supply disruptions of various commodities including food and fuel, the RBI has already hiked the repo rate 4 times this financial year to now rest at 5.9% in order to bring down inflation from its current 7% plus levels. While some feel that monetary tightening could have started a little earlier, the RBI took a fairly balanced approach to ensure that growth did not slow down as India was still emerging from the COVID induced lockdowns and business disruptions.
The US Fed hiked rates by 75 bps just yesterday to a range of 3.75% to 4% which is at its highest level since 2008. However, it also indicated a tapering off of subsequent hikes in order to bring inflation back to around the 2% target. This could be indicative of a similar position taken by the central bank in India to continue raising the repo rate in lower increments going forward to keep a check on inflation until global macros reach some level of stability".
RBI's next MPC and the last one for this calendar year will be held from December 5-7.
- Bringing inflation within target levels, report to Centre focal points
- Organised under Section 45ZN of the RBI Act
- First time the RBI has to give an explanation since formation of monetary policy committee framework in 2016
- RBI report to focus on bringing inflation under control
- RBI report to also focus on remedial actions and proposed time frame to bring inflation to midpoint
- The central bank will not make the details of the report public
- Das defended RBI's policies vis-a-vis inflation; said economy could have taken 'complete downward turn' (Also watch)
While the chances are slim, the central bank could go for another repo rate hike in a bid to tackle inflation levels.
Rahul Chander, MD and CEO of fintech NBFC LivFin said, “The encouraging employment numbers, showing growth at the fastest pace in three years on the back of strong factory output, is another factor which will affect any decision of the RBI in increasing rates at this time. If the MPC goes for another round of rate hike, it will add to the concerns of NBFCs as they struggle to maintain profitability in an already challenging economic environment, as frequent increases in interest rates not only dents the number of loan takers but carries a serious risk of default from existing borrowers." (Read more)
Governor Shaktikanta Das defended the RBI’s policies and mentioned the economy could have taken a “complete downward turn” if it started tightening rates earlier. The RBI started raising interest rates in May to contain high inflation due to Russia-Ukraine conflict and disruptions in the global supply chain. – PTI
RBI MPC member Shashanka Bhide told news agency PTI that high inflation rate in three consecutive quarters is a consequence of the ‘exogenous’ price shocks and addressing the issue will require coordinated policy efforts.
Bhide said, “While this pattern is mainly a consequence of the exogenous price shocks, it is important to take measures to limit the spillover of the price shocks to the rest of the economy. Addressing these issues will require coordinated policy effort, monetary policy and other economic policies.”
The monetary policy committee of the RBI has met to finalise the inflation report to be sent to the government. This report will focus on why the central bank failed to keep inflation under the 6 per cent threshold for three successive quarters. The MPC is headed by RBI Governor Shaktikanta Das and comprises Shashanka Bhide, Honorary Senior Advisor at National Council of Applied Economic Research, Delhi; Ashima Goyal, Emeritus Professor at Indira Gandhi Institute of Development Research, Mumbai and Jayanth R Varma, Professor at Indian Institute of Management, Ahmedabad.-- PTI
Sensex dropped 122 points to 60,783 and Nifty went down 41 points to 18, 041 due to the upcoming MPC meeting and a 75 basis points rate hike by the US Federal Reserve, The current MPC focuses on tackling inflation and drafting a letter regarding the same.
The US Federal Reserve announced a 75 basis point rate hike to 3.75 per cent-4 per cent in a late night shocker.
Speaking at the annual FIBAC conference of bankers, Das said that the RBI prevented a complete collapse of the economy by keeping policy rates lower and staying away from premature hikes. -- PTI
Markets would expect clarity regarding the time frame the central bank will be proposing to tame inflation and bring it within target levels. Investors are also closely watching how much the RBI can tighten monetary policy as the RBI has hiked policy rates by 190 bps since May.
The RBI boss said while addressing an event that the central bank is also evaluating factors like evolving inflation-growth dynamics, indicators like surveys on consumers and businesses, global macroeconomic, financial and commodity market developments and financiall stability. He added that the RBI's policy measures are based on an assessment of the overall situation.
The RBI stated supply shocks due to the Russia-Ukraine conflict in its latest Monetary Policy Report. The report stated, "War-induced price pressures as well as domestic supply shocks turned out to be stronger and more persistent than anticipated, resulting in actual inflation exceeding projections by around 100 bps each in Q1 and Q2 (of FY23)."
CPI inflation for September stands at 7.41 per cent. Shaktikanta Das said, "In early this year, when we looked at the CPI inflation trajectory, our assessment showed that the average inflation would be 4.5 per cent in 2022-23." (Read more)
"Our constant endeavour is to keep an eye on inflation, which is our primary target," Das said on inflation while addressing the FIBAC 2022 Conference. -- ANI
Rupee falls 8 paise to 82.88 against US dollar in early trade ahead of the monetary policy committee meeting. -- PTI
Today's MPC meet will explain reasons for missing the inflation targets. Besides this, it will discuss the draft letter on reasons behind failure to meet inflation target and its course of action regarding the same. The draft letter will be sent to the Centre.
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