Inflation could be a problem for India as surging oil prices and monsoon fears take hold Express News
“The longer-term concern is that the RBI’s independence is being eroded,” the research firm warned, saying that. “Any perception that policy is being kept loose for the benefit of the government could reverse the success the central bank has had in reining in price pressures over the past five years, and lead to a permanent rise in both inflation expectations and actual inflation over the medium term.”
India has managed to bring down its price pressures rather significantly in the last few years. According to data from the World Bank, CPI rose by 3.328 percent in 2017, compared to an increase of 10.908 percent in 2013.
“I view two RBI policy rate cuts this year being premature, non-proactive moves. Indeed, growth is slowing. But not to the extent of warranting an aggressive move,” said ING’s Sakpal.
There’s “nothing the RBI policy can do” about supply-side influences on inflation, such as monsoon season and oil prices driving food and fuel prices, he said. Rather, the central bank should use higher rates to adjust future consumer demand for food and fuel.
“Monetary policy is more effective in influencing the demand and it could have been proactively guided toward pre-empting future demand-pull price pressure. Not fueling it by cutting the interest rates,” Sakpal said.
Biswas of IHS Markit, however, said inflation numbers are currently still well within the central bank’s target range. But with core inflation already past 5 percent and the headline CPI expected to inch up, he said it signals the RBI “is unlikely to have scope” for further rate cuts in the near term.