RBI policy review: Will Raghuram Rajan spring a surprise again?

January 28, 2014 09:51

Reserve Bank of India Governor Raghuram Rajan will be in focus when he unveils the monetary policy today.

The RBI is likely to hold interest rates steady, thanks to easing inflation, according to majority of economists.

But Dr Rajan has surprised the Street in the all the three policy reviews ever since he took over as the RBI chief in September last year.

Raghuram Rajan had hiked rates twice by 0.25 per cent to tame soaring prices. But in the last monetary policy review on 18 December, Dr Rajan kept the key policy rates unchanged despite retail inflation accelerating to a record high of 11.24 per cent in the previous month (November) and wholesale inflation surging to 7.52 per cent, the highest in 14 months.

Dr Rajan said he expected food prices to come down in December and his gamble paid off. The wholesale price index slipped to five-month low of 6.16 per cent in December. But it is still stuck well above the RBI's commonly perceived comfort level of 5 per cent since June last year.

Despite the fall in inflation, economists expect the RBI policy decision to be a close call as the core inflation still remains high. Core inflation is a measure of inflation that excludes certain items like food and fuel that see volatile price movements.

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