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Why RBI stayed put on policy rates? Shaktikanta Das explains

Core inflation expected to remain in the current zone below 4 per cent, said Governor Das.

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Updated: Dec 05, 2019, 03.51 PM IST
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RBI Governor Shaktikanta Das said that there is a case for looking from the current spike in headline inflation which is mainly due to food prices.
NEW DELHI: Concerns over rising food prices forced the Reserve Bank of India (RBI) to maintain status quo in its fifth bi-monthly monetary policy review of the financial year on Thursday.

RBI Governor Shaktikanta Das said that there is a case for looking from the current spike in headline inflation which is mainly due to food prices. He added that some recent calculations show that during Q4 (January-March) the food inflation is likely to remain very high.

With regard to core inflation, it is expected to remain in the current zone below 4 per cent, he said in a presser.

“Moderation of food prices in the coming month is dependent on several factors. However, there are certain evidence that moves like a hike in tariff from the telecom sector may play out. This will further weigh on inflation,” Das said while adding that inflation control is the prime objective of Reserve Bank of India.

He also said that it is expected that inflation will come to about 3.8 per cent in Q2 of next year but there are several uncertainties and MPC would like to have greater clarity with that.

“There is a space for further rate cut,” said Das. At present RBI wants greater clarity on inflation.

“RBI prefers to pause this time as they wanted to see how inflation plays out,” Das added.

In a surprise move, the Reserve Bank kept benchmark interest rates unchanged on concerns of headline inflation breaching its medium-term target, despite a worrying slowdown in the economy.

After five consecutive cuts in interest rates this year, the six-member monetary policy committee (MPC) headed by RBI Governor Shaktikanta Das unanimously voted to hold the key repo rate at 5.15 per cent and reverse repo rate at 4.90 per cent.

Market expert Amar Ambani, President and Head of Research, YES Securities said, “The pause on the rates is attributed to transient inflationary risks, though the central bank affirms that there is space for policy action.”

Sudhakar Shanbhag, Chief Investment Officer, Kotak Mahindra Life Insurance Company said, “Against an almost consensus market expectation of a rate cut based on the slowdown seen in growth, the MPC seems to have chosen to focus on its mandate of inflation management and have recognised that the latest CPI print and expected prints over the next few months would be higher than their targeted level and also a belief that past rate cuts will help to support growth with focus on transmission.”

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