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02 October, 2014 23:03 IST
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StanChart says RBI`s inflation fighting stance justified
Source: IRIS (19-DEC-12)
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India's central bank, the Reserve Bank of India (RBI), in its mid quarter monetary policy review on Tuesday has kept CRR, repo and reverse repo rate unchanged. The market was expecting 25 bps rate cut in CRR to improve liquidity in the banking system.

``While the RBI acknowledged the recent moderation in inflation and has highlighted the need for a shift in the policy focus to support growth, it struck a cautious monetary policy stance. Many market participants had expected a rate cut today after the RBI's prediction of an uptick in inflation in Q3-FY13 (made in its October monetary policy statement) failed to materialise.``

``WPI inflation for the first two months of the quarter, at 7.45% in October and 7.24% yoy in November, fell  below the Q2-FY13 average  of 7.86%. The downside surprise in these inflation prints has increased the probability that WPI inflation will end FY13 below the RBI's current projection of 7.50%.``

``However, the RBI has not heeded market calls for a repo rate cut, instead adopting a wait-and-see stance. Even as it reiterated its October guidance of a possible repo rate cut in Q4-FY13, it refrained from striking a dovish note, reining in market expectations and avoiding committing to a repo rate cut in January 2013.``

``We believe the RBI's stance is justified as it awaits confirmation of a sustainable downtrend in WPI inflation. In the past couple of years, a few months of  positive inflation surprises have often not been sustained. Also, as the RBI highlighted in its policy statement, sticky retail prices remain cause for concern. CPI inflation has stayed in a high range of 9.7-10% for the past six months,`` said Anubhuti Sahay, Thomas Harr and Robert Minikin of Standard Chartered Bank, India.

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