Home / Economy / Letter to govt on inflation targeting failure not to be made public: RBI’s Das

Letter to govt on inflation targeting failure not to be made public: RBI’s Das

The Reserve Bank of India retained its inflation projection for the current financial year at 6.7% amid global geopolitical developments triggered by the Russia-Ukraine war. (ANI Photo)Premium
The Reserve Bank of India retained its inflation projection for the current financial year at 6.7% amid global geopolitical developments triggered by the Russia-Ukraine war. (ANI Photo)

  • Under the monetary policy framework, the central bank has to maintain retail inflation in the 2% to 6% range, with the median target of 4%. Failing to do so for three consecutive quarters requires the RBI to write to the government, citing reasons and remedial measures.

MUMBAI: The Reserve Bank of India (RBI) does not intend to make public its letter to the Union government explaining why the central bank has failed to meet the inflation target of 2-6% for three consecutive quarters.

Retail inflation has stayed above RBI’s flexible target between January and August, and is unlikely to be benign in September either and therefore has to send a report to the government in October. Under the monetary policy framework, the central bank has to maintain consumer price inflation (CPI) in the 2% to 6% range, with the median target of 4%. Failing to do so for three consecutive quarters requires the RBI to write to the government, citing reasons and remedial measures.

“It is a privileged communication between the RBI and the government and so at this point of time I cannot say whether it will be made public. From our end, we will not make it public…" said governor Shaktikanta Das.

In May 2016, the RBI Act of 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. Initially set for five years, the target was retained by the government for the next five-year period between 1 April 2021 and 31 March 2026.

Under the Act, RBI’s report to the government must contain the reasons for failure to achieve the inflation target; remedial actions proposed to be taken by the central bank; and an estimate of the time-period within which the inflation target shall be achieved.

India's retail inflation rate accelerated to 7% in August, fulled by a surge in food prices and staying above the RBI's 2-6% inflation target band for eight consecutive months now.

On Friday, RBI projected retail inflation at 6.7% for FY23, with the reading seen at 7.1% in Q2; 6.5% in Q3; and 5.8% in Q4, with risks evenly balanced. CPI inflation is projected to reduce to 5% in Q1 FY24.

While RBI has been emphasising that inflation will continue moderate in the coming months, inflation outlook remains shrouded in geopolitical uncertainty, said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics, Barclays.

“The RBI noted acute imported inflationary pressures, but saw potential for some improvement if lower commodity and oil prices were also passed through. However, the risks remained even," he said.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout