Monetary Policy Committee will meet to discuss RBI letter to govt on inflation aim failure

RBI keeps key repo rate unchanged at 6.5 percent.

The Monetary Policy Committee (MPC)  will meet before the Reserve Bank of India (RBI) writes to the Central government regarding its failure to meet the inflation target, according to comments by RBI Governor Shaktikanta Das.

“Let me not preempt what we write to the government because… MPC has to have a meeting to discuss the Reserve Bank’s reply to the government,” Das told reporters in Mumbai in a post-policy interaction.

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The rate-setting MPC typically meets six times in a year to decide on interest rates. The rate-setting panel has met several times outside the cycle over the last two years as it acted swiftly to dampen the impact of the Covid-19 pandemic.

The RBI is now on the brink of failing to meet its inflation mandate, as retail inflation has been above the its target of 4 percent for 35 months and outside the tolerance ceiling for eight straight months.

The central bank, which has hiked policy rates sharply since early May, expects inflation to ease marginally at the start of next financial year but to come close to 4 percent target only over two years.

The RBI is deemed to have failed when average inflation is outside the 2-6 percent tolerance range for three consecutive quarters. Having averaged 6.3 percent in January-March and 7.3 percent in April-June, inflation must fall to at least 4.1 percent in September for the July-September average to come in under 6 percent and the RBI to avoid failure.

The September print is likely to be above 7 percent, Governor Das told reporters.

Meanwhile, the letter to the RBI is privileged communication between the Reserve Bank and the government and won’t be made public by the central bank, Das added.