Hindustan Times (Lucknow)

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

- 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.”

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

Newspapers in English

Newspapers from India