Under the Reserve Bank’s law, if the inflation target has not been achieved for three consecutive quarters, the RBI is required to report to the central government detailing the reasons and steps taken to check inflation. Is.
Retail inflation increased in September (Indicative Image-PTI)
Is the issue getting out of hand in terms of inflation? Circumstances are indicating something similar. The country’s economy suffered a double shock on Wednesday in the form of data on retail inflation and industrial production. According to the data, due to the rise in the prices of food items retail inflation It hit a five-month high of 7.4 per cent, while industrial output declined for the first time in 18 months. It is a matter of concern that retail inflation has remained above the Reserve Bank of India’s (RBI) satisfactory level of two to six percent for the 9th consecutive month. In such a situation, the question is what will the RBI do next. The answer at a glance is that the repo rate will increase. And what will RBI do, let’s know.
Government will have to answer
With inflation remaining above the satisfactory level for the ninth consecutive month, the Reserve Bank will now have to report to the central government and explain the reason in detail. The report will have to explain why inflation could not be kept within the prescribed range and what steps are being taken to bring it under control.
Under the Reserve Bank’s law, if the inflation target has not been achieved for three consecutive quarters, the RBI is required to report to the central government detailing the reasons and steps taken to check inflation. Is. This will be the first time since the implementation of the Monetary Policy in 2016 that the RBI will have to give complete information about its steps to the government through a report.
MPC meeting will be held separately
Under the responsibility given to the Reserve Bank by the Central Government, the RBI has been given the responsibility to maintain retail inflation at four percent with two percent fluctuations. Now the Secretary of the Monetary Policy Committee (MPC) will have to convene a separate meeting of the MPC to discuss this under the RBI Act and prepare the report and send it to the Central Government. Retail inflation is considered in the MPC meeting.
The one-day meeting of the MPC may take place after Diwali as senior central bank officials are currently in the US to attend meetings of the International Monetary Fund and the World Bank. Last month, RBI Governor Shaktikanta Das had said that the report to be sent to the Center on the lapse in inflation target is a confidential matter between the two parties and will not be made public.
questions on work
If inflation remains above or below the lower limit on an average for three consecutive quarters, it will be considered as a lapse in the responsibility of RBI to keep inflation within the prescribed range. The central bank has been increasing the policy rate i.e. repo rate since May to bring inflation under control. It has so far increased the policy rate by 1.9 percent, which has reached the repo rate at 5.9 percent.
Option to increase repo rate
In the initial months of the pandemic, inflation remained outside the target range for more than three quarters. But due to technical deficiencies in data collection due to the lockdown, the RBI did not have to report at that time. This time it will not happen and RBI will have to report. The next step is to increase the repo rate. It is believed that in December, RBI can once again increase the repo rate. In view of the way inflation is increasing all over the world and central banks are increasing policy rates to control it, it continues to increase in India too. This is likely to make loans costlier and there is also a possibility of an adverse effect on growth.
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