The Reserve Bank of India’s three-day Monetary Policy Committee (MPC) meeting is set to commence today. Financial markets will be keenly watching the committee’s rate hike stance if any, as inflation is still above the 6 per cent target band.
The central bank had already hiked the key policy rate by 190 basis points since May to 5.9 per cent to cool off domestic retail inflation that has stayed above the RBI’s upper tolerance limit for over three quarters now. In October, retail inflation was 6.77 per cent as against 7.41 per cent the previous month.
Apart from the decision on the repo rate hike by the RBI’s MPC at its upcoming meeting, one can also expect a few more things post the discussions.
Economic experts expect the MPC to hike the repo rate by 25-35 basis points (bps) with industry lobby body ASSOCHAM also urging the central bank to do the same.
“The RBI will be presenting the monetary policy against the backdrop of GDP growth slowing down as well as inflation being high above 6 per cent. We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower – probably 25-35 bps,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
Further, it will also be interesting to see whether there will be unanimity amongst the members of the MPC on the decisions taken at the ensuing meeting.
Post MPC meeting, the RBI Governor Shaktikanta Das is expected to share what the bank has written to the central government as to the reasons for not controlling the inflation and the steps that are being taken to reign in the same.
Under the flexible inflation targeting framework introduced in 2016, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
As per Section 45ZN of the RBI Act, when the central bank fails to meet the inflation target, it shall send a report to the Central government listing: the reasons for failure to achieve the inflation target; remedial actions proposed to be taken by it; and an estimate of the time period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
The proceedings of the said MPC meeting have not been made public even though the law provides to the contrary.
As per section 45ZK, the RBI shall publish, after the conclusion of every meeting of MPC, the resolution adopted by the said Committee.