The Reserve Bank of India (RBI) has called for an additional meeting of its rate-setting panel, the Monetary Policy Committee (MPC), on Thursday, November 3. The panel will discuss a report to be submitted to the government explaining the reasons for the central bank's failure to meet the inflation target for three quarters in a row, sources told CNBC-TV18.
The meeting has been called under the provisions of Section 45ZN of the RBI Act 1934, according to a central bank statement. Section 45ZN — introduced in 2016 — deals with the RBI’s failure to maintain the inflation target.
When the RBI fails to meet the inflation target for three consecutive quarters, the act makes it mandatory for it to submit a report to the government explaining the reasons for the failure.
After a scheduled policy review on September 28-30, the RBI announced the MPC's decision to raise the repo rate — or the key interest rate at which the RBI lends money to commercial banks — by 50 basis points to 5.9 percent, in turn making loans expensive.
After the September review, the panel was originally slated to meet for the last time this calendar year on December 5-7.
Why call for an additional meeting?
The RBI has missed meeting its inflation target of four percent within a band of plus or minus two percent between January and September 2022.
In July, the CPI inflation was 6.7 percent, which rose to 7 percent in August and 7.41 percent in September. At its September policy meet, the RBI had projected CPI inflation to stay at 6.7 percent in the year ending March 2023, touching 7.1 percent in the July-September period, and 6.5 percent and 5.8 percent in the following two quarters respectively.
At the upcoming meeting, the six-member MPC will discuss the reply to the government which explains the reasons for the failure to achieve the target under Clause 2 and the remedial actions proposed by the RBI.
The central bank will also propose an estimate of the time period within which the target would be achieved following the timely implementation of the proposed remedial actions.
Report may not be public
Since the monetary policy framework came into effect in 2016, this is the first time that the RBI will have to explain its actions to the government.
RBI Governor Shaktikanta Das has said earlier that the RBI Act does not specify the frequency of writing the letter to the government. He has said aid that the report is a privileged communication between the central bank and the government, and may not be made public.
Out-of-cycle meetings
This will be the MPC’s second off-schedule or out-of-cycle meeting this year, following a a surprise meeting in May — after which the RBI made the first of announcements under the current cycle of policy tightening.
Since the additional meeting, the RBI has raised the repo rate by a total of 190 basis points. The panel also decided to stay focused on the withdrawal of accommodation to ensure that inflation remains within the target.
