MPC holds special meet to draft report on inflation target miss

The meeting was chaired by RBI Governor Shaktikanta Das. All the MPC members — Michael Debabrata Patra, Rajiv Ranjan, Shashanka Bhide, Ashima Goyal and Jayanth R Varma attended the meeting.

“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 RBI said in a press release, without giving any further details.

The MPC meeting was held a day after the US Federal Reserve raised interest rates by 75 basis points in its fight against inflation.

The consumer price based inflation (CPI), or retail inflation, has been above the target range of 2-6 per cent for three consecutive quarters, or nine straight months — January to September 2022.

The RBI has started its rate tightening cycle in May this year and has raised the repo rate by 190 basis points to 5.90 per cent so far. However, these hikes have not helped it in easing inflation to below 6 per cent – the upper end of the inflation target. Retail inflation hit the 7.4 per cent level in September.

Failure in meeting the inflation target for three quarters requires the RBI to write a report to the government explaining the reasons for the failure. The central bank will also have to mention the remedial actions it proposes to take and an estimated time within which the inflation target will be achieved following the timely implementation of the proposed remedial actions.

Das had made it clear on Wednesday that the RBI doesn’t have the authority to release the contents of the report, which is written as per the legal provision.

“I don’t have the privilege, or the authority, or the luxury, to release it (the report) to the media before even the addressee gets it. The first right of receiving the letter lies with the government,” he had noted.

However, the contents of the report will not be ‘perennially under wraps’ and will be available in the public domain at some point of time, he added.

This is for the first time, since the adoption of a new monetary policy framework in 2016, that a special MPC meeting was called under Section 45ZN of the RBI Act. It was the second out-of-turn MPC meeting in this year — the first being held in May 2022.

Das had defended the central bank’s decision of not tightening the interest rates at the beginning of 2022 as the rate action would have upset the economic recovery. He also said the RBI refrained from increasing rates as its analysis showed that the average CPI inflation during the year 2022-23 was expected to be around 5 per cent. However, on February 24, the Ukraine-Russia war started and it changed the entire dynamic. Das said by not raising rates, the RBI prevented a complete downward turn of the Indian economy.

In the process, there has been a slippage in our inflation targeting and in our ability to maintain inflation below 6 per cent. But it (premature hikes) would have been very costly for the economy, the citizens of the country and we would have paid a high cost,” Das said.