|Photo: India TV (Edited)|
"the trajectory of inflation/inflationary expectations is still somewhat fuzzy in view of (i) waning of base effect after December 2014 and (ii) absence of clarity with respect to commodity particularly crude prices (is it a 'new normal')." The RBI would want to wait until clarity emerges on this front". But if any Central Bank is not able to anticipate clearly the inflation projection, even after such stark-naked facts and figures, then I would call the said action to be yokelish.The report again quotes, India Ratings as:
"However, there are still certain food items which are witnessing very high to high double digit inflation for past several months. For example, over the past six months, inflation in fruits has ranged between 19% and 31%, in milk between 9% and 12% and in potato between 37% and 90%," it notes. But, there is no guarantee that the price will rise further or whether it has peaked out. Hence, this cannot be a basis for gauging the future inflation projections. Right?This article further says:
What has brought the prices down is not steps taken by the government. It is mostly because of the seasonal and global factors. For instance, seasonally this is the time when vegetable prices fall. Among global factors is the fall in crude oil prices.
At end my argument is that the RBI should cut the Repo rate to indicate their success on broad spectrum management of inflation. The fact is that 25 basis points cut of Repo by the RBI does not mean much, but its direction is important as this might give a good signal to the India Inc. Moreover, holding of Repo rate by the Central Bank, has not worked in tandem with the rate cuts by the banks, recently in their FDs, because of slowing of credit growth. Therefore, Dr.Raghuram Rajan should look at these vital parameters and go for at least 25 basis points cut in the Repo rates. Besides, the government should quickly bring FDI in multi-brand retail so that the effect of middle-man is reduced and have a tight grip on the inflation monster. Bond traders are betting on one of the biggest interest rate reductions among major emerging markets once the rate cutting cycle begins. The 10-year benchmark bond yield had dropped 36 basis points since Oct. 1 until the last session on hopes of a rate cut]