Mumbai: RBI Governor Raghuram Rajan defended status quo in the monetary policy today, saying that he does not want to “flip-flop” on it and is looking for “certainty” on various factors, mainly inflation, before lowering the key interest rate.
Rajan also announced progress in talks with the government on the adoption of a monetary policy framework, saying the inflation target for January 2016 and beyond has been set at 4 per cent, plus or minus 2 per cent.
“We have to make sure that the (disinflation) process is well underway. We have had a couple of months (of low inflation) after five years of high inflation. We want to make sure that this is for real especially because we don't intend to flip-flop,” Rajan told reporters at the post-policy media briefing after the 5th bi-monthly monetary policy, wherein he left all policy rates unchanged.
“The Reserve Bank wants to get more certainty about the pace of inflation movement before changing its stance,” he said.
Rajan reiterated that the desire is to have a linear movement once RBI shifts its policy stance to being accommodative, adding that the central bank does not want one policy to offer a cut and the next to raise the rates. Rajan, who is targeting to contain inflation at 6 per cent by January 2016, said disinflation process is underway and factors like the fall in global crude prices are positive for the country that imports over 80 per cent of its fuel requirements.
The consumer price inflation fell for the 5th consecutive month to 5.52 per cent in October, driven largely by base effects, while whole price index touched a five-year low of 1.8 per cent in the same month.
However, Rajan said: “A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.”
On the new monetary policy framework, which would involve setting of a formal inflation target and accountability to deliver on the same, Rajan said talks with the government have progressed well and the details will be announced soon.
“The government has indicated that it is comfortable in setting a target of 4 per cent, plus or minus 2 per cent, as suggested by a number of committees, including the Urjit Patel committee for inflation beyond 2016,” he said.
