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The Reserve Bank of India’s move to hike repo rate by 25 basis point has not come as a surprise and clearly reflects the central bank’s commitment to price stability as the dominant objective of monetary policy, a top policymaker has said.
It is also a reflection of the shift in focus of the RBI from wholesale price inflation to retail inflation, C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC), told Business Line here on Tuesday.
WPI, retail inflation
While the wholesale price inflation had softened to little over 6 per cent recently and came close to the RBI's comfort zone, the retail inflation at close to 10 per cent is not at an acceptable level.
Stating that the RBI’s move has not come as a surprise, Rangarajan pointed out that the central bank had given enough indications in recent months to suggest that price stability will be the dominant objective of monetary policy.
Monetary tightening
Rangarajan also saw this latest repo rate hike as the end of the rate hike cycle. The RBI guidance has conveyed that if inflation were to move along projected lines, there won’t be a need for further monetary tightening.
The central bank has taken a view that there is a tendency for inflation to come down in the coming months and hence further rate hikes may not be necessary, Rangarajan said.
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