The Reserve Bank will take into account all aspects including 5-year low inflation rate while deciding on interest rate at the monetary policy review next month, RBI Deputy Governor S S Mundra said today.
"...Of course there is an element of base effect and some local and global uncertainties always remain around us. So, we are watchful of all these developments and we will continue to taking all these inputs (while taking a view on interest rate)," he said at the RBI stall at India International Trade Fair (IITF) set-up to spread awareness on financial literacy and educate the common man on banking and financial matters.
Mundra added: "One, of course, is the various measures taken by the government, fiscal measures. Second, we also got lucky in some sense with the falling fuel prices or the softening commodity prices globally.
"The food prices also reflected the softening trend and the third component is the monetary policy which was in our domain which was pursued so what we are witnessing today, it is a combined effect of all the things."
Inflation based on the Wholesale Price Index cooled to a 5-year low of 1.77 per cent in October driven by softening prices of fuel and food items. At the same time, retail inflation, based on Consumer Price Index, also eased to 5.52 per cent at end of October.
With moderation in inflation, there is a widespread expectation that RBI will cut interest rate in its upcoming bi-monthly monetary policy on December 2.
Asked if recovery is taking place in the economy, Mundra said that optimism is certainly high. "Confidence appears to be much high than what it was... Signs are positive."
He said however that inflation is an "area of careful observation".
RBI has adopted a guided path, he said, adding that "by January 2015 an inflation rate of 8 per cent is what we will be comfortable with. By January 2016, it is the inflation rate of 6 per cent which we are talking about. So, I think we could not have more clearer direction".
Asked about the upside risk to inflation, Mundra said it could be global factors like fuel prices, the geo political tensions.
On deficit, he said the government has laid a roadmap for fiscal discipline and consolidation.
"Last year also a similar kind of goal was set and it was met, and I think the Finance Minister has mentioned it in more than one forum that the fiscal deficit target which has been set out will be met certainly," he added.
On the issue of proposed Chief Operating Officer for the central bank, he said RBI has not taken a final view on that as yet.
"It is a part of larger restructuring exercise in RBI. Some part of it has been completed and for the creation of the post of COO. Any DG post would need a change in legislation. We will make a reference to the government when we think that it is appropriate time to do so," he said.
