InvestorQ : What was the whole purpose behind the RBI MPC special meeting held during the week on 03rds November 2022?
Juvina Maggie made post

What was the whole purpose behind the RBI MPC special meeting held during the week on 03rds November 2022?

Deepa Salunkhe answered.
3 weeks ago

The RBI conducted a special meeting of the Monetary Policy Committee on the 03rd of November. Here is the agenda for the meeting and the purpose behind calling it.

· The meeting was specially called under the provisions of the RBI Act to discuss the progress on inflation control measures. Under the RBI Act, such a meeting has to be called if the inflation target is missed for 3 quarters in succession.

· The special meeting of Monetary Policy Committee (MPC) was called for the RBI to explain the reasons why RBI had failed to contain inflation. Let us look at two targets here. The RBI had set 4% as the median inflation target but with the leeway to go as low as 2% and as high as 6%.

· Now, there are 2 kinds of breaches that have happened. Firstly, the CPI inflation rate had exceeded the median inflation rate of 4% for 34 months in succession and it looks likely to remain that way for some more time. However, that was not the problem.

· The problem that really triggered the MPC special meeting was the fact that for 3 quarters (9 months) in a row, CPI inflation overshot the peak permitted rate of 6% for CPI inflation in India. That is what calls for explaining the reason inflation could not be controlled under the extant RBI Act 1934.

· Of course, it is not just enough to explain the reason. In addition to the reasons for not being able to meet the goals, the MPC must also submit a detailed report to the government on the context for the failure to meet inflation targets, remedial measures proposed at this juncture and indicative time lines for future trajectory of inflation.

· It is no rocket science to grasp that the most obvious reason for rampant inflation is driven by global factors. After all, geopolitical risk is outside the control of the RBI and imported inflation is a global phenomenon. India importing 85% of its oil needs is not going to go away in a hurry.

· The report will also evaluate if the central bank started the rate hikes too late in the day, but that has been the case even in the case of other central banks like the BOE, ECB and the US Federal Reserve. RBI had to do a tightrope between controlling inflation and not impacting growth negatively.