InvestorQ : What is the agenda that the RBP MPC special meeting plans to discuss and debate and is there likely to be a press release likely?
Ria Jain made post

What is the agenda that the RBP MPC special meeting plans to discuss and debate and is there likely to be a press release likely?

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Dia Deshpande answered.
4 weeks ago
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The special MPC meeting has been called by the RBI to report to the government as to why it had failed to meet the inflation target. The final outcome of the meet may not be known since the outcome report is supposed to be confidential. Now, the RBI has to explain to the government about the reasons why it failed to contain inflation. India consumer inflation has overshot the 4% median target for 34 months in succession. However, what really perturbed the RBI and the government is that inflation also skipped out of the 6% upper target for 9 months in a row. That is a spillage that requires a detailed explanation.

One report by Bloomberg suggests that the RBI may not have much of explaining to do and here is why. Bloomberg highlights that Indian inflation numbers might be better than what the official data by MOSPI suggests. That is because the current consumer inflation number does not factor in the impact of government free food program. Apparently, if that effect is also factored in, then actual rate of inflation could taper by 125 to 150 basis points. In short, there would not real spillage on inflation and that should explain the reason the RBI does not appear to be overtly bothered.

Eventually, it may emerge that the inflation did not overshoot for 3 quarters as the current data suggests. Often, the RBI is criticized for waiting too long before embarking on rate hikes, but that has been the case with all central banks and especially in the case of India, they could not take the output growth aspect too lightly. The good news is that by not accounting for food program, the consumer inflation since 2020 may have been overestimated. Between April 2020 and September 2022, the free food program accounted for 22% of India’s rice consumption and 14% of the wheat consumption.

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