RBI to submit a report to Govt on why it failed to contain inflation since January

In view of the inflation staying above the upper tolerance limit for nine straight months, the Reserve Bank will submit a report to the central government. The report will detail the reasons for the failure to contain prices and remedial steps to rein in the price rise.

According to the mandate, in the case of the inflation target not being met for three consecutive quarters, the central bank has to submit a report to the government explaining the reasons and detail the remedial actions it will be taking to check the price rise. This will be the first time since the onset of the Monetary Policy Framework, which came into effect in 2016 that the RBI will be made to explain its actions in a report to the government.

As per the mandate given to the Reserve Bank by the Union Government, the central bank is required to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side. The Secretary to the MPC, which factors in retail inflation while arriving at bi-monthly monetary policy, will now schedule a separate meeting of the rate-setting panel to discuss and draft the report to be sent to the Central Government under the provisions of the Reserve Bank of India Act.

The RBI functionaries are currently in the US for IMF and World Bank meetings, owing to which the one-day meeting of MPC members is likely to take place post-Diwali.

Last month, RBI Governor Shaktikanta Das had said the central bank considers the communication to the government for missing the inflation targets as privileged communication and will not be making it public.

The retail inflation based on CPI has remained above 6 per cent since January 2022. It was 7.41 per cent in September. The RBI Governor headed six-member Monetary Policy Committee (MPC) factors in retail inflation while deciding the bi-monthly monetary policy.

It may be noted that inflation had overshot the target for over three quarters during the initial months of the pandemic as well, but a technical shortcoming in the data collection, wherein data was collected without visiting the mandis because of the lockdown, had helped ensure that no such explanation has to be done by the RBI at that time.

On March 31, 2021, the Central Government retained the inflation target and the tolerance band for the next 5-year period April 1, 2021 to March 31, 2026.