Reserve Bank of India Governor Raghuram Rajan said he’ll focus on fighting inflation in coming months, in a sign that the key interest rate may stay elevated.
“For the next few quarters, we will be engaged in fighting inflation,” Rajan said before he began a speech at a banking conference in Mumbai. “Food prices have had an effect in the last couple of months and the hope is that with appropriate food management these prices will come down.”
Rajan held the repurchase rate at 8 percent on June 3 and said a quicker than anticipated slowdown in inflation would allow room for policy easing. A report yesterday showed wholesale prices rose at the fastest pace in five months in May, underscoring the challenge of restraining inflationary pressures as a potentially weak monsoon looms over crop output.
Rajan said the RBI is also watching how violence unfolds in Iraq and its impact on oil prices, while adding that India has sufficient foreign exchange reserves. Brent crude rose to a nine-month high on June 13, threatening to boost India’s import bill as the nation ships in about 80 percent of its oil.
The rupee, which has gained 2.4 percent this year, fell 0.3 percent to 60.3475 per dollar as of 12:27 p.m. in Mumbai today, according to prices from local banks compiled by Bloomberg. The yield on the government bond due November 2023 fell to 8.62 percent from 8.65 percent yesterday and the S&P BSE Sensex retreated 0.3 percent.
Wholesale inflation quickened to 6.01 percent in May from a year earlier, the fastest pace since December, the Commerce Ministry reported yesterday. Consumer prices rose 8.28 percent.
The rise is partly due to withholding of food stocks amid concerns of a weak monsoon, Finance Minister Arun Jaitley said in comments on his Facebook page yesterday. The government is committed to “ease supply side constraints,” he wrote, without elaborating.
The need to curb inflation will take precedence over boosting “near-term” growth, analysts at UBS AG, including Mumbai-based Gautam Chhaochharia, wrote in a research report today. Reining in price pressures “will also aid a more robust medium-term growth outlook,” they said.
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