The Reserve Bank of India (RBI) is conducting an out-of-cycle meeting of the Governor Shaktikanta Das-led Monetary Policy Committee today. According to an official release, the meeting has been called under two laws: Section 45ZN of the RBI Act, and Regulation 7 of the MPC.

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Section 45ZN got added only in 2016 to the RBI Act, which set up the MPC. Section 45ZN states that if the MPC fails to get to the mandated inflation figure of 2-6 percent, it will call a meeting submit a report to the government explaining why it failed. The report also details the measures it is taking to tame inflation and a timeline of when to expect the desired result.

Nevertheless, the market is worried it's an unscheduled meeting as it comes a day after the Fed's policy review, where the US central bank decided to hike its benchmark funds range by 75 bps.

Can there be an unscheduled rate action as well? No, say economists.

Speaking to CNBC-TV18, Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, said, “Whenever an unscheduled meeting takes place, and if it is given under Section 45ZN and Regulation 7, I think it is clear that the purpose is to define and draft a report to say that why the inflation target may not have been achieved and what is the remedial action."

"We should take this as an ordinary meeting, where the outcome will be purely a discussion of inflation, not meeting the target,” he said.

The RBI's ideal objective is to get inflation to four percent but as it is flexible inflation targeting, the target is over a business cycle.

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“The RBI is telling us their inflation forecast for FY24 (April 2021-March 2023) is 5.2 percent so clearly, the target will not be reached,” said Sajjid Chinoy, Chief India Economist at JPMorgan.

Chinoy believes that the RBI meeting after FOMC is purely coincidental.

“Regulation 7 says that the Secretary shall convene a meeting of the MPC under normal process to discuss the report that has to go to the government. That report has to go within one month when the inflation target is deemed to fail. That means the report has to go before November 12 and therefore, I think this is largely a formality given the timing that the MPC is meeting on the third of November and has to send that report before the 12," he said.

ALSO READ: VIEW | MPC's Nov 3 meeting — non-event in the near term; important in the long term

"The fact that it is happening the morning after the Fed I believe is purely coincidental,” Chinoy added.

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First Published:Oct 31, 2022 4:06 PM IST