InvestorQ : Why has the RBI not given any update on the special MPC meeting held to discuss inflation?
Juvina Maggie made post

Why has the RBI not given any update on the special MPC meeting held to discuss inflation?

Deepa Salunkhe answered.
3 weeks ago

To cut a long story short, the RBI may have wasted a chance to communicate a clear message to the people at large. The RBI could have, in a best case scenario, taken the government into confidence and used the special meet to make a very incisive and elaborate statement on the inflation trajectory as well as how it could pan out in the future. That would have also been able to set the tone for inflation expectations for the future since the RBI has given a lot of importance to influencing inflation expectations. Also, the RBI could have explained the reasons for high inflation and the policy stance via statement.

In short, this would have been a great opportunity to communicate the inflation and rate hike story to the public, and that has unfortunately been missed out. Like the Fed, the RBI needs to put a lot more stress on effectively and transparently putting across its stance to the people. That will make RBI policy tools a more effective too! Of course, the RBI has improved its communication of monetary policy substantially, but the point here is that this will go down as a missed opportunity as there were lot of expectations.

But here is an unrelated thing I would like to bring up here, which could make a difference to the future debates on monetary policy. When the MPC framework was put in place back in October 2016, after the exit of Raghuram Rajan, there was one major policy shift undertaken by the government. It was mandated that the final decision would be taken on the basis of majority vote. This is slightly different from the system that existed prior to 2016 and that could be the key to effective monetary policy decision making.

Till 2016, the RBI governor had the veto power to veto any decision arrived at by members. Any prudent central bank chief would only use the veto power as an exception and not as a rule. However, the Veto power gave a lot more decisiveness to the RBI policymaking. Now, the RBI governor does not have the incentive to express a counter-point. Food for thought.