The Reserve Bank of India (RBI) today released a brief statement confirming that the unscheduled Monetary Policy Committee (MPC) meeting was held solely to discuss inflation.

The meeting had been called under two laws — Section 45ZN of the RBI Act, and Regulation 7 of 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 to 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.

Speaking to CNBC-TV18, Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India, said the RBI is likely to list unprecedented external developments as factors leading to rise in inflation in their report.

“Governor has already emphasised in the last policy conference that this is because or external developments — one was the pandemic, second was Ukraine war and third is the unprecedented tightening by the central banks including the Fed. So RBI is likely to list these unprecedented developments in their report,” Ghosh said.

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Ghosh and B Prasanna, Head of Global Markets Group at ICICI Bank, believe that RBI has no other option but to go with the Fed in terms of the direction and hike rates by 50 basis points at its December meeting.

Prasanna said, “While the governor’s press conference yesterday was quite soothing and calming, I think there is no other option but for the RBI to kind of go with the Fed in terms of the direction. Even if you assume a 125 basis points rate hike by Fed from current levels, then even a 75 basis points rate hike from the RBI seems to be par for the course because you cannot let the interest rate differential to fall to too low levels. So I believe that the terminal rate has probably moved higher by 25 basis points from 6.50 percent to 6.75 percent. I am also inclined to believe that in the next policy the RBI would possibly like to do a 50 basis points hike.”

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“We expect the inflation to be a little higher than RBI’s projection of 6.7 percent and so we think a 50 basis point rate hike for the December policy looks on course. However if the Fed goes ahead with a 50 basis point rate hike in December and another 25 basis points each then RBI will have no option but to hike the rates incrementally. So maybe a base terminal rate of 6.50 percent and beyond looks the most likely option at this point of time,” Ghosh said.

According to Samiran Chakraborty, Chief Economist at Citi, it would be difficult for RBI to lay out a path for policy response while drafting the letter due to the global uncertainties.

Also Read: RBI holds central board meeting, reviews current economic situation

Chakraborty said, “Till now the RBI has clearly stayed away from giving too much forward guidance in a world filled with uncertainties. At this juncture while drafting the letter it would be very difficult for them to lay out an exact path of how the policy response function is going to be. However they will articulate the fact that whatever the COVID related easing of monetary policy has been on both rates as well as on liquidity, that has now been practically fully reversed. But it will very difficult for them to give a precise quantitative target of how much more rate hikes or more liquidity absorption is going to be required to bring down inflation.”

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