Comments
The Reserve Bank of India is hopeful that a possible moderation in inflation will allow it to cut key policy rates in the fourth quarter of this fiscal.
The RBI projects that inflation may rise in the next two months and peak at eight per cent in December, before it begins to moderate in the last quarter.
India’s central bank revised its inflation target for the fiscal to 7.5 per cent.
“The projections are at best approximate…I cannot give guidance about what will happen in January and March, but if projections indicate a moderation in inflation for the March quarter then we could take some action in January,” RBI Governor D. Subbarao said.
Subbarao expects inflation to come down after December because of the base effect.
The monetary policy stance is decided not only on the basis of inflation figures but also on the basis of growth. So, GDP figures of the second quarter will also play a role, he said.
Notwithstanding reports from some economists that inflation at six-seven per cent has become the new normal, Subbarao said that the RBI still thinks that inflation can be brought down below five per cent in the short-term and to three per cent in the medium term so as to match international inflation.
Subbarao said that RBI is of the view that inflation is both due to cost push and demand pull factors.
He said, however, that the contribution of demand pull factors to inflation has come down.
“It is a need and an obligation of the central bank to use the monetary policy as an effective instrument to control inflation,” he said.
During the media interaction, Pratip Chaudhuri, SBI Chairman, felt that monetary policy cannot be an effective tool to control cost-push fuelled inflation.
“I do not think that key policy rate increases that happened in the past two years actually helped in lowering inflation because today’s inflation is largely cost push and not much of demand pull,” he said.
>satyanarayan.iyer@thehindu.co.in
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.