New Delhi: Reserve Bank Governor Raghuram Rajan today said no single data point will determine the central bank's next move on curtailing high inflation amidst a weak economy, even as he hoped that a good monsoon will lead to generation of disinflationary forces.
In the past two consecutive policies, the RBI raised the repo rate by 0.25% each in view of the worsening price situation. The next policy is scheduled on December 18. "No single data point or number will determine our next policy move....We are going to look at all the data, understand where we are and take further action," Rajan said at the annual banking event `BanCon 2013' here this evening.
Demand needs to be reduced without having severe effects on investments and supply as low growth itself helps curb inflation as a disinflationary tool, he said. "The weak state of the economy, as well as the good Kharif and Rabi harvest on the back of a good monsoon, will generate disinflationary forces that will help, and we await data to see how these forces are playing out.
"This is a balancing act, which requires RBI to act firmly so that the economy is disinflating, even while allowing the weak economy more time than one would normally allow for it to reach a comfortable level of inflation," he added.
The repo rate now stands at 7.75 per cent. In the previous two reviews, the policy rate was hiked citing persistent inflationary pressures, especially driven by food articles and services.
While WPI inflation for October rose to an eight-month high at 7 per cent, retail inflation jumped above the double-digit mark to 10.04 per cent in the month.
On inflation control, he said one way to curtail inflation is to increase supply and the other is to slow down the demand. "Typically, you have to follow a balancing act. Supply usually takes a longer time to come in and you can tolerate higher inflation until it comes in but of course, inflation itself has negative effects on people's incentives to create supply. This is a balancing act.
"You have seen from every statement we made that we are following that balancing act. We want to ensure that inflation doesn't get out of control, but we also recognise that we are a weak economy and that weak economy itself helps somewhat in inflation as demand is also weak," Rajan said.
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