Apropos Anup Roy's report, "Raghuram Rajan leaves repo rate unchanged at 6.5%" (August 9), the decision of the outgoing Reserve Bank of India (RBI) governor to maintain status quo at his final monetary policy review meeting wasn't a surprise; it was a foregone conclusion in the wake of the "inflationary" situation in the economy.
Retail inflation for June was 5.77 per cent. This had its root in the spurt in food prices. Man-made circumstances created by vested interests jacked up the Consumer Price Index (CPI), much to the discomfiture of the common man as well as the RBI.
Of course, the central bank's monetary policy doesn't have direct bearing on the prices of food items and fuel, even though both carry weight in the basket of goods used to fix the benchmark figures for inclusion in the CPI indicating the actual price level in the economy.
Rajan once again relied on an accommodating stance. Had he opted for a rate cut, he would have contradicted himself by moving away from his well-known position of reining in inflation. The government has recently mandated the RBI to achieve an inflation target of four per cent (plus or minus two per cent) over the next five years. Since growth and inflation go hand in hand in any developing economy, inflationary tendencies cannot be ruled out.
Regarding the maintenance of status quo, Rajan knows his job well. It doesn't matter that he didn't offer a parting gift.
Vinayak G Bengaluru
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