Mumbai, Dec 5 : As the Reserve Bank of India (RBI) in a surprise move kept the repo rate unchanged on Thursday, causing the markets to go jittery, RBI Governor Shaktikanta Das defended the decision by recalling the "primary objective" of the central bank, which is inflation targeting and price control.
This comes as a complete change of mind of the Governor along with most of the other members of the Monetary Policy Committee (MPC).
Defying the expectations of the sixth consecutive rate cut, the RBI on Thursday announced that the repo rate would be kept unchanged at 5.15 per cent, which made everyone curious about the reason behind such an unexpected decision.
Speaking to the media after the announcement, Das said that the headline inflation is currently high, largely due to high food inflation.
He further said that food inflation will remain "very high" during January-March, which prompted the RBI to hit the pause button on rate cuts.
"There is a case for looking through the current spike in headline inflation, which is mainly due to the spike in food inflation.
Our calculation shows that during Q4 (January-March), food inflation in particular is likely to remain very high and its moderation in the coming months is dependent on several factors," Das said.
Regarding core inflation, he said that it is likely to remain below 4 per cent, while some factors, including rise in telecom tariffs, among others, are also likely to have an impact on it.
Das noted that there are several uncertainties in the inflation scenario, which prompted the MPC to not go ahead with yet another rate cut.
"There are several uncertainties and the MPC would like to have better clarity with regard to that.
And let us also keep in mind the fact that inflation targeting and price control are the prime objectives of the Reserve Bank Monetary Policy as prescribed in the RBI Act," he said.
Das also pointed out that despite the cumulative 135 basis points (bps) rate cut in the last five MPC meetings, the transmission in retail loans has only been 44 bps, adding that some more time needs to be given for rate cuts along with the recent stimulus measures announced by the Centre to play out.
"The Reserve Bank on its part has reduced the policy rates consistently since February. The liquidity has been in surplus mode since June. The full impact of our policy rate cut is also playing out. Till now it is 44 bps with regard to new loans.
"We should give some time with regard to the rate action taken by the RBI so far. We should allow some more time to get it more and more reflected in the (retail) lending rates," Das said.
The RBI Governor also said that the MPC decided to wait for the effects of the Centre's stimulus measures and the previous consecutive rate cuts to actually translate on the ground.
"Therefore, the MPC decided that at this juncture its better to take a temporary pause," Das said.
He further said that RBI is also required to keep in mind the objective of growth and "that has been given due weightage and the MPC has given a very clear unambiguous forward guidance that there is space for further rate cut and the Reserve Bank will act if the evolving situation so warrants."
--IANS
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Source: IANS
