 "Countering consumer inflation bodes well for economy: experts")
The Reserve Bank of India's surprise repo rate hike of 25 basis points is a welcome move and shows that targeting the consumer price inflation bodes well for consumers, say experts. The increasing divergence between the consumer price inflation and the wholesale price index in recent times is another reason why the RBI is increasingly adopting a monetary stance that is more tilted towards consumer price inflation.
Says R Sivakumar, head-fixed income, Axis Mutual Fund: “Clearly the RBI has taken consumer inflation as the primary target. Earlier by targeting WPI, CPI would also come down as both their movements were co-related. But now with the rising divergence between the two, the RBI is clearly moving towards consumer inflation.”
In his policy statement, the Governor expressed concern saying that the gravest risk to the value of the rupee is from CPI inflation, which remains at close to double digits. “Elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This, in turn, discourages investment and weakens growth. High inflation weakens the rupee. Inflation is also a tax that is grossly inequitable, falling hardest on the very poor. “
CPI inflation, which had shot up to 11.2% in November 2013, is edging lower and ruling at 9.87% currently.
Says R Sivakumar, head-fixed income, Axis Mutual Fund: “Clearly the RBI has taken consumer inflation as the primary target. Earlier by targeting WPI, CPI would also come down as both their movements were co-related. But now with the rising divergence between the two, the RBI is clearly moving towards consumer inflation.”
In his policy statement, the Governor expressed concern saying that the gravest risk to the value of the rupee is from CPI inflation, which remains at close to double digits. “Elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This, in turn, discourages investment and weakens growth. High inflation weakens the rupee. Inflation is also a tax that is grossly inequitable, falling hardest on the very poor. “
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Experts say that going forward, the RBI is more likely to adopt more measures from the Dr Urjit Patel Committee report and if core inflation shows signs of easing then the RBI's outlook is positive. Says Sivakumar: “The RBI positive statement shows that we are now clearly in a pause mode and we can start looking at some positive data from inflation.”
CPI inflation, which had shot up to 11.2% in November 2013, is edging lower and ruling at 9.87% currently.