Rajan says inflation still causes concern

A day after Reserve Bank of India Governor Raghuram Rajan kept key interest rates unchanged in the latest policy review, he offered an explanation for maintaining status quo by saying inflation was still a cause for concern.

"We still have concerns about inflation," Rajan said Wednesday in a conference call with analysts.

He added, however, that the deflationary global environment gave the Reserve Bank some room for manouevre with monetary policy.

"We are still in conventional monetary policy territory. Given the deflationary environment elsewhere, it's actually easier for us because we are not fighting inflation in an environment where inflation is picking up elsewhere," Rajan said.

 

India's retail inflation fell to a low of five percent in December 2014, from 9.87 percent during the corresponding month of 2013.

The December retail inflation was, however, a rise over the record low of 4.4 percent consumer price index (CPI) registered in November 2014.

December's retail inflation increase came after fourth straight month of decline till November.

Rajan said Tuesday that attaining the projected inflation target of 6 percent by January 2016 is at risk due to expected "food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly."

"The future policy stance will be inluenced by the RBI's projections of inflation relative to the medium term objective of 6 percent by January 2016, while being contingent on incoming data," Rajan told the press in the post-policy briefing.

He said it would be easier to meet the 8 percent CPI target for 2018.

wholesale price index (WPI) based inflation fell to 0.11 percent in December 2014 from 6.40 percent in the corresponding month of 2013.

The rate of inflation based on WPI was nil for November from 1.77 percent for the previous month (October).

"Future food prices and the timing and magnitude of held back administered price revisions impart some uncertainty to an otherwise improving inflation outlook," the policy statement said.