MPC meet may take a call on policy rate hike
RBI for the first time holding addl meeting of MPC for FY23 on Thursday, just after the Fed meeting on Nov 2
Mumbai: The forthcoming meeting of RBI's Monetary Policy Committee (MPC) is likely to discuss key policy rate. In a first, the Reserve Bank of India is holding an additional meeting of the MPC for 2022-23 on November 3. This provision hasn't been invoked earlier.
Talking to Bizz Buzz, Dr Joseph Thomas, Head (Research), Emkay Wealth, says: "The RBI MPC meeting is under Sec 45ZN of the RBI Act of 1934. This clause pertains to the matter regarding submission of a report to the government on the failure to meet the inflation target. The report
is to be sent to the government. However, the discussions may be around the policy rate too."
A rate hike to be contemplated is because of several factors.
As the meeting is being held under the provisions of Section 45ZN of the RBI Act, 1934, the meeting may be called an additional one or a kind of an emergency meeting. The developments around inflation remain the prime concern of the central bank. It is expected that inflation will be quite persistent because of oil prices, weaker rupee and elevated housing costs. This needs to be combated to control the situation as the RBI's forecast of 6.70 per cent average inflation for the whole year remains unchanged.
It may be noted here that the RBI meeting is being held a day after the FOMC meeting and the US Fed is likely to go for another major hike in the meeting. RBI will have to respond in sufficient measure given the fact that the local currency has been sliding and rate action needs to be taken to protect or stabilize the rupee.
The US GDP numbers released recently present an economy that is growing at a better than estimated rate. It may be mentioned here that the US economy grew at 2.6 per cent against a de-growth of 0.6 per cent in the previous quarter.
According to Thomas, "ECB hiked the base rate by 0.75 per cent and this adds to the urgency with which the RBI needs to respond. Further, the rate of inflation is well above the mandated ceiling of six per cent and therefore, the need to take comprehensive action to bring inflation down to acceptable levels."
Anil Kumar Bhansali, head (treasury), Finrex Treasury Advisors LLP, says: "The RBI has exceeded its target of maintaining the inflation under six per cent and is scheduled to write a letter to central government detailing the reasons for which inflation has remained above six per cent and also remedial measures and by what time it will be able to get the inflation down. The meeting seems to be for that purpose."
The timing after US Fed meeting also suggests that they could discuss further rate hikes to bring inflation under control and USD-INR interest rate differential to ensure rupee remains steady and does not weaken much to bring imported inflation into the country, he said.
Shiva Kumar, former MD, SBBJ, says: "Interest rate, forex reserve, rupee value are amongst the crises RBI is facing. Ukraine war and a real threat of nuclear war are continuing to keep the global economy in turmoil, affecting every country in different measures, India included. It is believed that a global recession is staring at everybody, notwithstanding India insulated to some extent." MPC is meeting out of turn on November 3. There could be something urgent. I am not able to fathom the purpose. But this comfort may collapse if the situation gets grimmer. RBI needs to address the above situation, he said.
However, SBI's group chief economic advisor, Soumya Kanti Ghosh says: "The current unscheduled meeting on November 3 is only a part of the regulatory obligation and we do not foresee any other agenda to be announced at this meeting, even as it is scheduled a day after the Fed meet on November 2. Furthermore, looking at the past unscheduled meetings of MPC in March 2020 and May 2022, there were no press release of such meetings earlier and the announcement of rate decision was unscheduled in true sense."
RBI in its Report on Currency & Finance (2020-21) has mentioned that in the case of India, failure may be redefined as inflation overshooting/ undershooting the upper or lower tolerance bands around the target for four consecutive quarters instead of current three quarters.