RBI says letter to govt. on missing inflation target not to be made public

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%.

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

The consumer price inflation is widely expected to be above 6% 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,” Mr. 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.

Mr. Das also said that the RBI has been expecting inflation to come down to close to the target of 4% 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% in FY23 and will come at 7.1% in Q2, 6.5% in Q3 and 5.8% in Q4. It estimates the headline number to cool down to 5.1% in Q1 FY23.