The Reserve Bank of India (RBI) is “very uncomfortable” with both higher retail inflation and lower factory output data, strengthening the view that policy rates may well be hiked again at the upcoming mid-quarter monetary policy review on December 18.
“We are uncomfortable with the current inflation level when it is at 11.24%. CPI (consumer price inflation) data has surprised us on the upside and the IIP (the Index of Industrial Production) data has surprised us on the downside. Some more data are still to come. We have to look at the details and frame policy accordingly,” said RBI governor Raghuram Rajan on Thursday.
Negative data makes formulating monetary policy difficult, Rajan said. “...you have to calibrate policy carefully. There are some trade-offs that we have to make. We are aware of weak economy but have to take inflation into account.”
Rajan said there is a need for states to amend their Agricultural Produce Marketing Committee Act to improve distribution systems and stop cartelisation in transportation that raises costs.