Ahead of the monetary policy committee (MPC) meeting on Thursday,  Reserve Bank of India Governor Shaktikanta Das defended the central bank’s stance on managing inflation by saying that it has been a constant endeavour to keep “Arjuna’s eye” on inflation.

“We prevented a “complete collapse of the economy” by keeping rates lower and staying away from premature tightening,” Das said speaking at the IBA-FICCI Annual Banking Conclave.

Acting early would have imposed costs on the economy and people, Das said.

Das observed that during the pandemic, the monetary policy committee (MPC) utilised the flexibility embedded in the monetary policy framework to tolerate a slightly higher inflation, but within a range of 2–6 per cent, to ensure that the overall economy remained resilient and financial stability was maintained, with the clear objective that as the situation normalised inflation would be brought down to 4 per cent.

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“Today we are in a situation where the inflation has remained above 6 per cent for three consecutive quarters, and as per the accountability norms provided in the RBI Act, we are expected to send a report to the government explaining as to why it happened and what measures we propose to take...

“So, the MPC will meet tomorrow, and we will prepare a report and send it to the government,” the governor explained.

He underscored that the MPC framework (instituted in 2016) is based on strong principles of transparency.

“The MPC’s resolution is meant for the entire economy. Immediately, the markets should know what the RBI’s decision is. Citizens of the country should know what the RBI’s decision is,” Das said.

Unlike that, when inflation is above 6 per cent for three consecutive quarters, the RBI writes a letter to the government and a report is sent under the law.

Noting that domestic inflation remains elevated, he said the RBI is closely monitoring the inflation trends as well as the effects of its past actions.

The central bank’s view is that price stability, sustained growth, and financial stability need not be mutually exclusive.

Retail inflation has been in breach of the 2–6 per cent target range for three successive quarters until September 2022, averaging 6.3 per cent, 7.3 per cent, and 7 per cent in the January–March, April–June, and July–September quarters, respectively.

Das likened the RBI’s inflation fight to Arjuna’s laser-focussed approach in the epic Mahabharata. “In the Mahabharata, during the famous Swayamvara, when the great warrior Arjuna aimed at the eye of the revolving fish through the pool of water below, he would have certainly assessed the speed at which the fish was revolving, the wind conditions, the intensity of the ripples in the pool of water, the noise levels in the king’s court, and similar other factors.

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“No one can match the prowess of Arjuna, but our constant endeavor is to keep an Arjuna’s eye on inflation, which is our primary target,” the Governor said .

At the same time, the RBI keeps assessing other related factors like the evolving inflation-growth dynamics; soft indicators like its surveys on consumers and businesses; global macroeconomic, financial, and commodity market developments; and financial stability.

Report to the Govt

“I don’t have the privilege, the authority, or the luxury to reveal a letter like this (release it to the media) which is written under the law.

“But that is not to assume that the contents of the letter and the report are going to be kept perennially under wraps. They will be available in the public domain at some point,” the governor said.

He emphasised that the first right to receive the letter lies with the government.

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