“The longer-term concern will be which the RBI’s independence will be being eroded,” the research firm warned, saying which. “Any perception which policy will be being kept loose for the benefit of the government could reverse the success the central bank has had in reining in cost pressures over the past a few years, along with lead to a permanent rise in both inflation expectations along with actual inflation over the medium term.”
India has managed to bring down its cost pressures rather significantly inside last few years. According to data through the planet Bank, CPI rose by 3.328 percent in 2017, compared to an increase of 10.908 percent in 2013.
“I view two RBI policy rate cuts which year being premature, non-proactive moves. Indeed, growth will be slowing. yet not to the extent of warranting an aggressive move,” said ING’s Sakpal.
There’s “nothing the RBI policy can do” about supply-side influences on inflation, such as monsoon season along with oil prices driving food along with fuel prices, he said. Rather, the central bank should use higher rates to adjust future consumer demand for food along with fuel.
“Monetary policy will be more effective in influencing the demand along with which could have been proactively guided toward pre-empting future demand-pull cost pressure. Not fueling which by cutting the interest rates,” Sakpal said.
Biswas of IHS Markit, however, said inflation numbers are currently still well within the central bank’s target range. yet with core inflation already past 5 percent along with the headline CPI likely to inch up, he said which signals the RBI “will be unlikely to have scope” for further rate cuts inside near term.