Long way to go be­fore in­fla­tion eases: RBI

PRICE PINCH Hopes of in­ter­est rate cut dampen as Re­serve Bank says re­cent fall in crude oil and food prices not enough

Hindustan Times (Lucknow) - - HT BUSINESS - HT Cor­re­spon­dent ■ let­ters@hin­dus­tan­times.com

Even as record low crude oil prices soften in­fla­tion lev­els in the coun­try, the Re­serve Bank of In­dia (RBI) feels the price in­dex still has a long way to go be­fore it eases fur­ther, as over­all in­put costs con­tinue to re­main steep.

“The risks still re­main. On in­fla­tion, there is still a long way to go. There are struc­tural is­sues also. We are see­ing high in­fla­tion in ru­ral ar­eas,” RBI deputy gov­er­nor HR Khan told a gath­er­ing of chief fi­nan­cial of­fi­cers at a sum­mit or­gan­ised by the Con­fed­er­a­tion of In­dian In­dus­try.

The cen­tral bank’s stance comes in the wake of calls by in­dus­try cap­tains who have lob­bied for an in­ter­est rate cut. Fi­nance min­is­ter Arun Jait­ley, too, joined hands with the in­dus­try when he hinted that eco­nomic con­di­tions are ripe for a rate cut.

High in­fla­tion is usu­ally cited as one of the main rea­sons for cen­tral banks to main­tain sta­tus quo on in­ter­est rates or raise them, while fall­ing prices could prompt a re­duc­tion in bor­row­ing costs.

The con­sumer price in­dexbased (CPI) or re­tail in­fla­tion grew to 6.46% in Septem­ber, low­est in three years, mainly due to fall­ing oil and food prices, the two ma­jor con­stituents in the CPI bas­ket. In­dia im­ports about 80% of its fuel re­quire­ments. Price of crude oil, which in 2013 reached $100 a bar­rel, has now soft­ened to about $82.

The RBI has set a re­tail in­fla­tion tar­get of 8% for next Jan­uary and 6% a year later.

“Form­ing the mon­e­tary pol­icy (in the con­text of chang­ing geopo­lit­i­cal fac­tors) has its lim­i­ta­tions,” Khan said. “Pro­jec­tions are chang­ing due to uncer­tain­ties.”

Stat­ing that he is “chas­tened” bythe mas­sive jump in for­eign in­vest­ments by In­dian com­pa­nies, Khan chided them for not do­ing enough re­search be­fore tak­ing their de­ci­sions, as many had to exit such in­vest­ments in dis­tress. “You’ve gone with­out proper re­search, due-dili­gence and ad­e­quate plan­ning. So you now see a large-scale dis­in­vest­ments of such as­sets hap­pen­ing.”

Khan said In­dian com­pa­nies would have to ad­dress ma­jor chal­lenges, in­clud­ing ex­po­sure to large debt. Ac­cord­ing to RBI data, In­dia Inc raised $3.17 bil­lion from over­seas mar­kets in Septem­ber this year, down 5.3% from last year.

Laud­ing the steps taken so far, Khan said get­ting com­pla­cent has its own risks. “Sta­bil­ity has the po­ten­tial to be­come com­pla­cent. We are in an en­vi­ron­ment of Black Swans. On the do­mes­tic front, growth re­cov­ery is tepid but sen­ti­ment is good. Cap­i­tal and in­vest­ment cy­cle are yet to pick up. Since we are cou­pled with global econ­omy we can’t be in­su­lated by global un­cer­tainty.”


M&M chief fi­nan­cial of­fi­cer VS Parthasarathy (left) with RBI deputy gov­er­nor HR Khan in Mumbai on Fri­day

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