With reference to the report, "Inflation worries force RBI to maintain status quo on interest rates" (June 7), Reserve Bank of India Governor Raghuram Rajan has taken the right decision by neither tinkering with the repo rate nor tweaking the cash reserve ratio at the banking regulator's bimonthly policy meeting on Tuesday.
The genesis of this decision can be found in some inflationary tendencies already making their presence felt in the food inflation at home as well as in some positive indications of an upward revision by the US Federal Reserve at its scheduled meeting from June 14 to 15.
Rajan is concerned because there is no visible decline in the equated monthly instalments (EMI) of borrowers from various commercial banks despite his earlier announcement of lowering the repo rate by 150 basis points since January 2015. The RBI cannot be expected to remain a spectator as the largely growth-oriented economy suffers due to the side effects.
Since the Consumer Price Index (CPI) has already risen from 4.8 per cent in March to 5.4 per cent in April, mainly due to food inflation, the RBI may have deliberately opted to maintain an accommodative stance. But it is pertinent that the Wholesale Price Index (WPI), too, came in at 0.3 per cent in April, after being in negative territory for 17 consecutive months. Although the RBI's monetary policy does not bank on it, this negative development should serve as a warning.
I hope the situation improves when the country receives normal rainfall during the monsoon and there is reprieve in terms of food inflation. Let's wait and watch.
Kumar Gupt, Panchkula
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