RBI Governor needs to send explanatory report to government if the central bank fails to retain inflation within the 2-6% band for three consecutive quarters is mandatory for missing inflation target for three quarters
RBI Governor needs to send explanatory report to government if the central bank fails to retain inflation within the 2-6% band for three consecutive quarters
The Reserve Bank of India (RBI) has called for an additional meeting of its Monetary Policy Committee (MPC) on November 3 to discuss its response to be sent to government for missing its mandated target to retain retail inflation within the 2% to 6% band for three consecutive quarters.
“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. This announcement is made as per Section 45ZI(4) of the RBI Act 1934.” the RBI said in a statement.
The MPC will deliberate on the contents of the letter to be written by RBI governor Shaktikanta Das explaining why the target was missed and what measures the RBI would be taking to bring inflation back to the stipulated range.
This will be the first time that such a letter would be written since the MPC framework too effect in 2016. Also, this will be the second time that such an off-schedule meeting has been called for during this year. In May, a meeting of the MPC was called to increase rates to help counter rising inflation.
It is the mandate of the RBI to keep CPI inflation at 4% with a variation of 2% either side in tolerance band. Which means inflation must remain within the 2% and 6% range and it is the responsibility of RBI to ensure this.
Due to the double whammy of the pandemic and the Russian war, inflation in India has remained at elevated levels beyond 6% for more than three quarters, making it mandatory for the RBI to explain the reason to the government.
Factors that constitute failure to achieve the inflation target include: average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or the average inflation is less than the lower tolerance level for any three consecutive quarters.
In case the Reserve Bank fails to meet the inflation target, “it shall set out in a report to the central government the reasons for failure to achieve the inflation target; remedial actions proposed to be taken by the Bank; and an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions,” according to the mandate the government had set out for the RBI.