RBI says letter to govt on missing inflation target will be privileged communication; not to be made public | The Financial Express

RBI says letter to govt on missing inflation target will be privileged communication; not to be made public

The agreement gives a 2 percentage point leeway on either side, and inflation has breached 6 per cent – the upper tolerance of the band set for the RBI – for eight consecutive months.

RBI says letter to govt on missing inflation target will be privileged communication; not to be made public
This will be the first time since the onset of the framework in 2016 that the RBI will be made to explain its actions in a letter.

RBI Governor Shaktikanta Das on Friday 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.

As per the medium-term inflation targeting framework, which came into being after an agreement between the central bank and the government, the RBI has to write a letter explaining the reasons for missing the target and charting out details on when it is likely to achieve the target of 4 per cent.

The agreement gives a 2 percentage point leeway on either side, and inflation has breached 6 per cent – the upper tolerance of the band set for the RBI – for eight consecutive months.

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The consumer price inflation is widely expected to be above 6 per cent for September as well, and the data — which comes out on October 12 — will trigger the clause of the agreement where an explanation will have to be given.

This will be the first time since the onset of the framework in 2016 that the RBI will be made to explain its actions in a letter.

“It is (the letter) a privileged communication between the Reserve Bank and the Government. At this point of time, I cannot say whether it will be made public.

From our side, we will not make it public because it is a privileged communication from the central bank to the Government,” Das told reporters on Friday.

He said the Monetary Policy Committee, which meets every two months to formulate the policy actions, will meet to discuss the contents of the letter to be handed over to the government.

Das also said that the RBI has been expecting inflation to come down to close to the target of 4 per cent over a two-year cycle, and continues to believe that it will come down.

As per the RBI’s estimates, inflation is set to average 6.7 per cent in FY23 and will come at 7.1 per cent in Q2, 6.5 per cent in Q3 and 5.8 per cent in Q4. It estimates the headline number to cool down to 5.1 per cent in Q1 FY23.

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