RBI looking beyond headline inflation for policy moves: Urjit Patel

MUMBAI: RBI governor Urjit Patel today said RBI is looking beyond the headline inflation figures and is focusing on core inflation trends, which excludes more volatile food and fuel prices, to guide RBI's policy moves.

"The Monetary Policy Committee feels inflation, excluding food and fuel, is something that has been stubborn since September-October and has shown little sign of coming decisively below 5 per cent and that was the main reason why we had to look through headline inflation," Urjit Patel said in an interview with CNBC TV18.

"RBI's main objective at the moment to contain inflation below 4 per cent and the recent declines in vegetable prices could be short lived," Patel said.


RBI governor has faced some criticism from bankers for not adequately guiding the markets on the central bank's thinking, especially after it abruptly shifted its stance from "accomodative" last week.

Patel said the RBI's monetary policy committee will continue to monitor how long the disinflationary pulse from the cash crackdown will last.

"It's most likely going to be short lived," he told CNBC.

"That was the reason that MPC thought that we needed to have flexibility going forward, therefore the shift of stance form accomodative to neutral".

RBI is expected to keep interest rates on hold until at least the second half of next year, according to a Reuters snap poll taken after earlier this month after the central bank's change in policy stance.

Falling food prices helped cool consumer inflation rate to 3.17 per cent in January year-on-year, the mildest reading in at least five years and well below the RBI's medium-term target of 4 percent.

But, core inflation accelerated to around 5.1 percent, pointing to building price pressures in the broader economy.

India's wholesale prices rose at the fastest pace in two-and-a-half years in January as fuel prices climbed, reinforcing the Reserve Bank of India's surprise decision last week to move to a neutral policy stance as inflation risks grow.

On demonetisation, Patel said: "Note ban will lead collateral benefits for economy like better public finance and greater accountability. Remonetisation will help growth rebound faster."

Speaking over rupee depreciation, Patel said rupee is broadly where it should be and the RBI will only intervene in case of undue volatility.

(Inputs from Reuters)