Rangarajan sees pause in rate increase cycle

Ahead of the Reserve Bank of India’s (RBI’s) monetary policy this week, the Prime Minister’s economic panel on Tuesday said the central bank might hold key policy rates as inflation for November had fallen to a 11-month low of 7.48 per cent.

“Perhaps, the declining trend in inflation might tilt in favour of holding on to the present situation,” Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan said. RBI is slated to come out with its mid-quarter monetary policy on December 16. Inflation declined to 7.48 per cent in November, mainly on falling prices of certain food items. It stood at 8.58 per cent in October.

To tame inflation, RBI had last month increased its short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 6.25 per cent and 5.25 per cent, respectively. It was the sixth time this financial year the apex bank had raised key lending and borrowing rates to cool inflationary pressures in the economy.

Going forward, Rangarajan said RBI would watch inflation numbers for primary articles for the next two weeks and if the decline in inflation continued, it might hold key policy rates beyond this week’s decision as well.

“If this trend continues, perhaps the RBI may not initiate any action. It all depends on the trend noticed in the next two weeks,” he added.

Rangarajan said inflation was likely to decline to around 6.5 per cent by December-end.