India’s monetary policy rate setters will meet on Thursday to write a letter to the government on why they failed to keep inflation within a 2%-6% mandated range for three straight quarters, Bloomberg reported.
This is the first time the Reserve Bank of India is writing such a letter after the country switched to a flexible inflation-targeting regime and formed a committee in 2016 to set interest rates, the report said.
The off-cycle meeting has caused some anxiety among bond investors, the report added, especially since it comes hours after the Federal Reserve raised interest rates by 75 basis points for a fourth straight time and signalled that interest rates will go higher than earlier projected, although the path may soon involve smaller hikes.
RBI’s letter won’t be immediately available to the public, although the government may decide to release it later, Governor Shaktikanta Das said Wednesday. Das defended the central bank’s decision not to raise rates even when inflation started climbing at the start of the year.
India’s consumer prices have risen above 6% since January, hitting an eight-year high in April. RBI started tightening a month later and has since raised the benchmark rate by 190 basis points after four consecutive increases that have taken borrowing costs to pre-pandemic levels.
By not tightening earlier, the central bank prevented a "complete downward spiral" of Asia’s third-largest economy, which was just beginning to recover from the pandemic, Das said. "In the process, there was a slippage in inflation targeting," Das said. If the rates were raised earlier, "it would have been very costly for the economy."
The RBI’s rate panel is scheduled to hold its next policy review in early December. The central bank expects price gains to fall back within the targeted range by the end of the fiscal year in March, as international commodity prices drop, the report concluded.
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