Shrinking Consumer Inflation Rates may lead to Rate Cuts
Reports reveal a significant drop in consumer inflation rates at 5.52 % in October. It is the lowest since February 2008.
The previous consumer price index for urban dwellers had its lowest inflation rate in February 2008 and the significant lowering has been recorded once again in October at the rate of 5.52%. This report was revealed after the Government had begun the compilation of consolidated national statistics for consumer inflation in India.
Analysts believe that if the moderation in consumer prices can be sustained in a similar way for some time to come, it can help in paving the way for a much easier monetary policy, and sooner than expected. However, this may not lead to rate cuts as per the country’s present monetary policy regulated by the RBI authorities.
The Reserve Bank of India at present is chasing lower consumer inflation as one of the primary strategies to decide upon policy rates. The monetary policy which had been initially anchored on wholesale price inflation has now been modified.
Consumer inflation statistics which used to be compiled previously primarily focused on specific categories of workers such as industrial workers, rural labourers and urban non manual workers. This method of compilation continues to be followed by the government but the urban white-collar workers inflation has been replaced with national consumer inflation and the data is based on the inflation for the urban and rural areas.
Retail inflation fell by 6.46 per cent in September which was recorded to be the lowest since the annual consumer inflation statistics started being compiled from early 2012.
The new governor of RBI, Raghuram Rajan has not caved into the pressures of the Industry or Government to ease policy to revive investments and has thereby been holding on to policy rates. The RBI however aims at bringing about a sustained decline in consumer inflation, the target being 8 per cent by January of 2015 and 6 per cent by the following year.
The policy rates have been held at 8 per cent as per the fourth bi-monthly monetary policy review launched two months back. The Central Bank is reported to have commented on the lowering inflation rates saying that the softening of crude prices and relative stability in the Foreign Exchange market, which are considered inflation risks have also reduced. There however continue to be other risks associated with the food price shocks, weather and geo-political development factors etc.
Source: VC Circle
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