India cenbank calls meet to discuss response to govt on missing inflation target

A man walks behind the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai

By Ira Dugal and Aftab Ahmed

MUMBAI (Reuters) -The Reserve Bank of India has scheduled an additional meeting of its policy-setting committee to potentially discuss its response to the government on its failure to stick to its inflation target for three quarters in a row.

This meeting of the central bank's Monetary Policy Committee (MPC) has been scheduled for Nov. 3.

Under the provision cited by the RBI for the meeting, the central bank is required to write a letter to the Indian government explaining its inability to meet the target.

A source familiar with the matter confirmed that the meeting has been called to discuss the response to be sent to the government.

The MPC, established in 2016, is mandated to keep inflation within 2 percentage points on either side of its 4% target. It has failed to do so for three consecutive quarters now, with inflation at 7.4% in September this year. Retail inflation has remained above 6% since January.

The central bank has cited a series of supply shocks, most recently due to the Russia-Ukraine conflict, as one of the reasons for missing the inflation target.

"War-induced price pressures as well as domestic supply shocks turned out to be stronger and more persistent than anticipated, resulting in actual inflation exceeding projections by around 100 bps each in Q1 and Q2 (of FY23)," the RBI wrote in its latest Monetary Policy Report published on Sept. 30.

The central bank's letter to the government requires suggestions for remedial measures and a path for inflation to be brought down to within the target band.

The RBI expects inflation to fall to 4% over a two-year period, Governor Shaktikanta Das told TV channel ET Now in an interview in August.

Reuters reported the government was comfortable with the central bank meeting the target over the medium term.

(Reporting by Chris Thomas in Bengaluru; Additional reporting by Ira Dugal; Editing by Dhanya Ann Thoppil, Krishna Chandra Eluri and Saumyadeb Chakrabarty)