The RBI is in no hurry to cut interest rates despite inflation trending low for several months now and there being no obvious immediate reason why it should move up sharply. Raghuram Rajan, the RBI governor, may have good reasons to be cautious though, considering what happened during the previous governor D. Subbarao’s tenure. He took charge as the governor in September 2008 and stayed on for 5 years. His tenure’s start coincided with the global financial crisis. The governor and the government joined hands with a monetary and fiscal stimulus to protect India’s economy and financial markets. Continue Reading →
Consumer inflation has been on a steady rise even as wholesale price inflation has been dropping, even turning negative in certain weeks. This is not a new development but the trend is not showing signs of slowing down. The Consumer Price Index for agricultural labour increased by 11.5% in June 2009 over the previous corresponding period while CPI for rural labour too increased by 11.2%. The price index had risen by 10.2% in May 2009, reflecting a sharp increase.
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In recent months, industrial output and inflation have both falling. That has led to fears of deflationary conditions prevailing in the economy, an undesirable phenomenon. Some expect the RBI to lower interest rates again to revive demand. But the RBI itself wants the impact of the measures it has taken to percolate fully, before it takes more measures.