On October 31, the Monetary Policy Committee, headed by Governor Shaktikanta Das, held an out-of-cycle meeting at the Reserve Bank of India (RBI). The meeting has been summoned in accordance with Section 45ZN of the RBI Act and Regulation 7 of the MPC, according to a formal announcement.
Only in 2016 was Section 45ZN added to the RBI Act, creating the MPC. According to Section 45ZN, the MPC must convene a meeting and report its findings to the government if it fails to reach the statutory inflation rate of 2 to 6 percent. The report also provides a schedule for when to anticipate the intended outcome as well as information on the steps being taken to control inflation.
Though it comes a day after the Fed’s policy review, where the US central bank chose to increase its benchmark funds range by 75 basis points, the market is concerned that it is an unplanned meeting.
“Whenever an unscheduled meeting occurs, and if it is given under Section 45ZN and Regulation 7, I think it is clear that the purpose is to define and draught a report to say why the inflation target may not have been achieved and what is the remedial action,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.
“This meeting should be viewed as routine, with the sole purpose of discussing inflation rather than hitting the target,” he said.
The ideal aim for the RBI is four percent inflation, but because it uses flexible inflation targeting, the target is achieved across a whole business cycle.
Sajjid Chinoy, Chief India Economist at JPMorgan, stated that the RBI’s inflation prediction for FY24 (April 2021–March 2023) is 5.2 percent, indicating that the target will not be met.
Chinoy thinks it is a pure coincidence that the RBI meeting occurs after the FOMC.
According to Regulation 7, “the Secretary must call a meeting of the MPC in accordance with standard procedure to debate the report that must be submitted to the government. When the inflation objective is assessed to have failed, that report must be submitted within one month. As a result, I believe this is mostly a formality given the scheduling of the MPC’s meeting on November 3 and the requirement that the report is submitted by November 12 “he said.
“I think it’s sheer coincidence that it’s happening the day after the Fed meeting,” Chinoy continued.
News Mania Desk
