Rajan keeps key rates unchanged; asks Centre to be vigilant on rising retail prices
RBI governor Raghuram Rajan
Mumbai: The Reserve Bank of India (RBI) on Tuesday flagged off concern regarding a spike in non-food price inflation especially in education and health services even as it kept key rates — repo and reverse repo — unchanged.
In its fifth bi-monthly monetary policy statement, RBI said that CPI inflation excluding food, fuel, petrol and diesel also rose for three consecutive months on account of price increases in respect of housing, recreation and amusement, and personal care and effects.
Within this broad category, education and health services contributed most to headline inflation. Households’ inflation expectations remain elevated although they have edged lower recently, perhaps in response to lower prices of petrol and diesel, the RBI noted.
“Services inflation is obviously a source of concern,” said RBI governor Raghuram Rajan, governor, while addressing the media here. According to him, the spike in services inflation largely reflects the supply side constraints in our economy as high quality education and high quality healthcare or reasonable quality education and reasonable quality healthcare are relatively in short supply.
“That is one reason why we keep saying that this is not just about food, it’s about other elements. But that has been coming down over the last year or so,” he said. Pointing out that taxes also impact services inflation, Dr Rajan said that the impact of the GST on inflationary pressure should also have to be considered going forward. “We will have to figure out a way as and when the GST comes in. It is something that we will have to adjust for going forward,” Dr Rajan added.
Economy is in recovery mode
The economy is on a growth path and there are signs of early stages of recovery. This is indicated by acceleration in industrial activity and Monday’s GDP figures of 7.4 per cent growth is good news and looks sustainable because of various reforms and initiatives of the government relating to rail, port and road projects that would improve construction and housing activity.
RBI governor Raghuram Rajan said “whilst there are areas of growth in manufacturing such as capital go-ods and passenger cars, weak rural demand and external demand holds back stronger overall growth.”
Similarly a revival in the services sector has been boosted by optimism on new business, though pockets of lacklustre activity as in construction weigh on the overall outlook. Agriculture though affected by the prospects of both the rabi and kharif being hit, overall “the current outlook for agricultural growth in 2015-16 appears moderate at best at this juncture.”
He said the even the expected shortfall in the rabi crop can be minimised by astute supply management by the Centre in coordination with the states. Because of these positive factors he kept GDP growth for the year at 7.4 per cent and said could even be 7.5 per cent with some downside risks.
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( Source : deccan chronicle )
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