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No rate cut from RBI: Fuel, food prices force central bank to remain hawkish

The Reserve Bank of India (RBI) kept the repo rate unchanged at 6 per cent as inflation worries remained as food prices and fuel prices have are rising. The central bank also revised as the inflation projections to 4.8 per cent from 4.7 per cent by March 2018. 

RBI said the risks to inflation may remain in the near term putting an end to rate cut hope for now as food prices remained erratic.  

RBI said in  its policy, “Food inflation was volatile in the last two months – declining sharply in September and bouncing back in October – due mainly to vegetables and fruits. Milk and eggs inflation has shown an uptick, while pulses inflation remained negative for the eleventh successive month in October. Cereal inflation remained stable. Fuel group inflation, which has been on an upward trajectory since July, accelerated further due to a sharp pick-up in inflation in liquefied petroleum gas (LPG), kerosene, coke and electricity.”

The Reserve Bank’s survey of households also showed inflation expectations firming up in the latest round for both three months ahead and one year ahead horizons. Farm and industrial raw material costs also rose in October to force RBI to remain hawkish.

Firms responding to the Reserve Bank’s Industrial Outlook Survey also expect to pass on the increase in input prices to their output prices. Turning to other costs, wage growth in the organised sector edged up, while rural wage growth weakened, particularly in agriculture.

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