BackInflation is still a risk
The immediate situation is relatively benign but it is clear that inflationary risks are still lurking
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The Reserve Bank of India published its first-ever monetary policy report on Tuesday. It says that the statistical model used by the Indian central bank to forecast inflation is predicting that inflation in the fourth quarter of fiscal 2016 will be 7%, or one percentage point more than the inflation target for January 2016 that the Indian central bank said it is committed to.
In his monetary policy statement, governor Raghuram Rajan does not sound sanguine either. This newspaper agrees with his assessment that India is witnessing disinflation thanks to lower oil prices and a relatively stable rupee. The immediate situation is relatively benign but it is clear that inflationary risks are still lurking. It is for this reason that all demands for lower interest rates at this juncture are unrealistic. Rajan has earlier said that he wants to break the back of inflation.
He is nowhere close to doing so.
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