RBI rate-setting panel plans unscheduled meet on November 3

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The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will hold an additional meeting on November 3.

“Under the provisions of Section 45ZN of the Reserve Bank of India (RBI) Act 1934, read along with the Gazette notifications S.O.2215(E) dated June 27, 2016 and S.O.1422(E) dated March 31, 2021 and the Regulation 7 of the RBI Monetary Policy Committee (MPC) and Monetary Policy Process Regulation, 2016, an additional meeting of the MPC is being scheduled on November 3, 2022,” the RBI said in a release.

As per Section 45ZN of the RBI Act, the central bank must submit a report to the Centre following the failure to achieve the inflation target. Further, as per Regulation 7 of the aforementioned regulation, the MPC’s secretary must schedule a separate meeting as part of the normal policy process “to discuss and draft the report to be sent to the central government under the provisions of Section 45ZN of the Act”.

“The Report shall be sent to the Central Government within one month from the date on which the Bank has failed to meet the inflation target,” the regulation adds.

The September retail inflation print released on October 12 confirmed the Indian central bank had failed to meet its mandate for the very first time. Per the law, RBI must now submit a report to the central government explaining why it failed to contain inflation, the remedial actions it proposes to take, and the period within which inflation will return to target.

Consumer Price Index (CPI) inflation rose to 7.41 percent in September, confirming that average inflation had stayed outside the 2-6 percent band for three consecutive quarters.

Inflation has been consistently above the MPC’s 2-6 percent target band for three consecutive quarters. The MPC is tasked with confining inflation within a band of 2 to 6 percent. This is the definition of failure under the flexible inflation targeting framework.

The RBI expects inflation to average 6.7 percent in FY23. Thereafter, it expects inflation to drop to 5 percent in the April-June FY24 quarter, closer to its target. RBI governor Shaktikanta Das had given a two-year timeline for inflation to fall to 4 percent.

The MPC's unscheduled meeting comes a day after the US Federal Reserve's (Fed) policy decision on November 2. The Fed, like the RBI, is also looking to quell inflationary pressures.

According to the original schedule, the MPC’s next policy decision was scheduled between December 5-7.