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Justifying his decision to hold policy rate in the mid quarter review of monetary policy – contrary to market expectation of 25 bps hike – Reserve Bank of India’s governor Raghuram Rajan said the central bank will react to ‘spikes’ –referring to November inflation numbers.
“When there is lot of uncertainty, you wait for more data to come in, to get a sense of how we want to act,” Rajan said at the post policy press conference adding that if RBI hikes rates when inflation is 11% (retail) but then next month if it comes down to 9%, then it will call for immediate rate reversal.
“Any monetary policy action is determined by a variety of variables. Rate decision does not depend on a particular indicator, but a variety of indicators. What we've seen that we need to see a substantial softening in both headline inflation and some momentum in right direction in core inflation,” he said.
Though today RBI has paused on the rate front – after two successive hikes in September and October – but warned that RBI will act in off-policy dates if inflation does not fall according to the central bank’s assessment.
Annual retail inflation accelerated to 11.24 percent in November from 10.17 percent the previous month. WPI inflation for the same month was 7.52% – which is 14 month high -- as compared to 7% in October.
