The policy committee of the Indian central bank meets to review the country’s first missed inflation target.
MUMBAI The Reserve Bank of India’s (RBI) monetary policy committee (MPC) will convene on Thursday, outside of its regularly scheduled meetings, to examine its first-ever inflation goal miss, which will necessitate it writing a letter to the government.
In the medium run, the central bank wants to keep retail inflation within two percentage points on either side of its 4% target.
What is said in the RBI mandate?
Related: Due to the country’s strong inflation, the central bank may increase the rate to 11%.
The RBI mandate requires that the central bank outline the following in a report to the government: the reasons for the failure to achieve the inflation target; any suggested corrective actions; and an estimated timeframe for when the actions are expected to bring inflation back to target.
Why is there a special MPC meeting?
The committee failed to keep retail inflation within the 2-6% target range for three consecutive quarters, necessitating the first special MPC meeting since the MPC was established in 2016.
Since January, retail inflation has been around 6%; in September, it increased to a five-month high of 7.41% year-over-year due to an increase in food prices.
Since January, India’s retail inflation has risen above 6% (see graphic at Reuters.com/INDIA-INFLATION/INDIA/akvezbwzqpr/chart.png).
What explanations may the RBI offer for missing the goal?
The aftermath of the COVID-19 epidemic, supply chain disruptions, and the Russia-Ukraine war, among other “exogenous supply-side forces,” are what Radhika Rao, an economist at DBS Bank, predicts the central bank would blame for the slide.
Indian inflation’s contributing factors https://graphics.reuters.com/INDIA-ECONOMY/INFLATION/lgvdwreempo/chart.png
In a speech in June, RBI Deputy Governor Michael Debabrata Patra made a similar suggestion.
According to Patra, “India is being affected by the global inflation problem, showing the manifestation of geopolitical threats.”
What timetable would the RBI provide for achieving the inflation target?
In a television interview with ET Now in August, Governor Shaktikanta Das stated that the RBI anticipates inflation to drop to 4% over a two-year timeframe.
According to observers, the letter would probably adhere to that time frame.
Why is it important to the markets and investors?
The markets will like some clarification on how long the RBI plans to take to get inflation within the target range.
Investors are anxiously looking to see how much further the RBI can tighten monetary policy after raising interest rates by 190 basis points since May.
Will the meeting also cover rate increases?
The majority of traders do not anticipate any rate action during the meeting, but there has been some speculation that the RBI may raise rates in response to the anticipated 75 basis-point increase in U.S. rates on November 2.
Soumya Kanti Ghosh, top economic adviser of the State Bank of India, noted in a letter, “The unplanned meeting on November 3, 2022, recently announced is only a part of the regulatory responsibility.”
In contrast to the market’s forecast of a remote likelihood of a rate hike, “we do not believe any other agenda to be announced at this meeting.”
Related: Column-Central bank guns went up because banks got more money. Mike Dolan
A rate decrease in 2020 during the COVID-19 pandemic and a rate increase earlier this year to combat persistently high inflation were among the actions the MPC previously took at two unscheduled sessions.
What will happen to the December MPC regular meeting?
Analysts predicted that the calendar of meetings would not change for the remainder of the year and predicted at least one or two more rate increases before the current tightening cycle comes to an end.
