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RBI governor says looking beyond headline inflation

The Reserve Bank of India needs to look beyond the country's so far muted headline inflation figures, as it has committed to meeting a 4 percent inflation target, said its Governor Urjit Patel in a television interview on Friday.

Patel, in a CNBC TV18 interview said, disinflation in vegetable prices in the country could be short lived, and added the central bank needs to focus on core inflation that excludes inflation in food and fuel prices.

"We also find commodity prices have firmed up globally," he said, in an initial snippet of the interview that aired early on Friday.

The Reserve Bank of India on Wednesday kept the policy repo rate unchanged against the expectations of a 25 basis points (100 basis points is equal to one per cent) rate cut.  However, the main highlight of the policy was the change in the RBI's stance from "accommodative" to "neutral".  
 
While a neutral stance gives the central bank the flexibility to move in either direction but many fear that this may well be the end of the rate cut cycle.
 
"RBI left the Repo rate unchanged at 6.25 per cent despite lowering its inflation outlook and GDP growth projections.  There seems to be a greater concern on global oil and commodity prices and thus its indicates to us that there is now a higher bar on further rate cuts by the RBI. The change in stance  from accommodative to neutral suggests to us that we might have actually reached the end of the rate cutting cycle," said Arvind Chari, Head-Fixed Income and Alternatives, Quantum Advisors.

Source Reuters

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