Happy Diwali everyone !!
Additional Meeting of the Monetary Policy Committee for 2022-2023
RBI today slated an additional meeting of the MPC on Nov 3, 2022 under the provisions of Section 45ZN of the RBI act. There was a flutter among participants regarding this meeting since it is scheduled immediately after the U.S FOMC Rate decision on Nov 2, 2022.
Provisions of Section 45ZN of the RBI act pertain to
Failure to maintain inflation target.--Where the Bank fails to meet the inflation target, it shall set out in a report to the Central Government--
(a) the reasons for failure to achieve the inflation target;
(b) remedial actions proposed to be taken by the Bank; and
(c) an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
Regulation 7 of the RBI MPC and MPR Regulation, 2016 pertain to the requirement for RBI to send the report to the Central Government in the event of a
failure to achieve the target within 1 month from the date on which the Bank has failed to meet the
inflation target.
The unscheduled meeting is for RBI to prepare a report justifying the breach and steps to control inflation going forward.
The current OIS curve is pricing in 25 bps of rate hike in the December 5 - 7, 2022, 20 bps of rate hike in the February 23 policy and 27 bps of hike in the Apr 23 policy.
RBI's response letter to the Govt will likely not be made public. Any comments post the meeting may have a bearing on the markets. RBI's own projections indicate inflation to fall to 5% in Q1 of next financial year. Unless RBI decides to hike rates to manage the rupee depreciation, it seems unlikely that rates will be hiked under the provisions of this meeting. Some position squaring could see rates getting paid.
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