On November 3, the Reserve Bank’s rate-setting committee will meet in extraordinary session to discuss why the government failed to keep retail inflation below the target of 6% for three consecutive quarters since January. The report on the causes of the failure to attain the inflation target as well as the corrective actions the central bank is taking to reduce prices in the nation will be prepared by the six-member Monetary Policy Committee (MPC), which is led by RBI Governor Shaktikanta Das.
The Reserve Bank of India (RBI) announced on Thursday that an additional meeting of the MPC has been planned for November 3, 2022, in accordance with Section 45ZN of the RBI Act 1934. Inflation target failure is addressed in Section 45ZN of the RBI Act. According to the RBI Act, the central bank is required to report to the government when the inflation target is missed for three consecutive quarters and outline the corrective measures it will take to stop the price increase.
The RBI will have to defend its actions to the government for the first time since the monetary policy framework went into effect in 2016. According to the Union government’s directive to RBI, the central bank is expected to maintain retail inflation at 4% with a 2% cushion on each side. During the pandemic, inflation too exceeded the objective for more than three quarters, but the RBI was exempt from telling the government why. Due to pandemic-related constraints, data was collected without visiting mandis, which constituted a technological flaw in the data collection process.
Since January 2022, the retail CPI-based inflation rate has exceeded 6%. In September, it was 7.41 %. Retail inflation is taken into account by the MPC when determining the bimonthly monetary policy. For any three consecutive quarters, the average inflation rate must not exceed the upper tolerance level or fall below the lower tolerance level in order for the RBI to be deemed to have failed in its duty to target inflation. Das stated last month that the communication from the central bank to the government regarding the government’s failure to meet the inflation targets is private communication and will not be made public.
