Tuesday, January 25,
RBI is likely to hike short-term rates by 25-50 basis points in the third quarter monetary policy review on Tuesday to stem inflationary pressures.
“Food inflation in particular has remained stubbornly in double digits for over two years now, which has welfare costs…..The upside risks to inflation, particularly from the impact of supply rigidities and hardening commodity prices have increased, which could dampen the expected impact of monetary policy to some extent. Policy response ahead has to recognize these risks,” said the RBI in its third quarter review of the macroeconomic and monetary policy developments.
Pointing to oil prices moving to a higher trading range and the sectoral imbalances in several non-cereal food items, the central bank said, higher policy rates may not ensure the desirable degree of demand adjustment, even with the usual transmission lags, given the nature of the items in which the imbalances are growing.
The anti-inflationary focus of monetary policy would have to continue, recognising though the limits of monetary policy in dealing with structural pressures on inflation, and the need for forward looking response to demand side pressures.
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