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Why the RBI is unlikely to hike the repo rate today

While inflation will top the agenda at today’s MPC meeting, interest rates won’t, because the focus will be on accountability. Section 45ZN of the RBI Act of 1934 requires the central bank to explain to the government its failure to adhere to the inflation target. Today’s unscheduled meeting is about framing that response.

November 03, 2022 / 09:33 AM IST
RBI Governor Shaktikanta Das

RBI Governor Shaktikanta Das

In the run-up to the unscheduled monetary policy committee (MPC) meeting today, there has been a debate among a section of economists on whether this meeting is about a rate hike or not.

But the debate itself Is unwarranted; it was clear from the day of the announcement that the November 3 meeting would be about framing responses to the government on the central bank’s  failure to meet its inflation target for three consecutive quarters (retail inflation, on average, has been above 6 percent).

Section 45ZN

The MPC meeting on November 3 was called under two sections. Of this, Section 45ZN of the Reserve Bank of India (RBI) Act, 1934, refers to the failure to adhere to the inflation target. It kicks in when the RBI fails to meet the inflation target, as was the case when CPI inflation averaged 7 percent in the July-September period, 7.3 per cent in April-June quarter and 6.3 per cent in the January-March period.