RBI's Third Quarter Monetary Policy

RBI’s Monetary Policy

Yesterday’s RBI’s monetary policy has surprised almost economic experts and advisers as majority of them had not anticipated the increase in interest rate. In its third-quarter review of monetary policy RBI has hiked the repo rate to 8.0% . CRR has remain unchanged. RBI has emphasised on bringing down CPI (Consumer Price Index) inflation to 8% and further bringing down to 6% in next 24 months.

It clearly indicate that the future move of interest rate depend on CPI mainly. I expect CPI inflation would be around 8.5% during 2014-15. However, in December headline CPI came down due to falling vegetable prices but core CPI inflation was still high at 8%. WPI (Wholesale Price Index) had also picked up in December 2013.

Difference between Headline CPI and Core CPI:

Very often we read and listen about headline CPI and core CPI but many people do not understand it. Core CPI index mainly consist with housing, clothing, bedding, footwear & miscellaneous items but it does not include food and fuel item. In the other side headline CPI includes food and fuel item also.

Along with inflation there is some weakness in currency front so it is another important factor for RBI for further monetary policy. There are still downside risk of rupee against dollar exist.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Inflation would play crucial role in next RBI policy..?

Inflation would play crucial role in next RBI policy..?

There is little respite from rising prices. The wholesale price index, the most widely-watched indicator of inflation in India, rose 6.46 per cent in September from a year earlier. That is sharply higher than August's level of 6.10% and 5.85% in July’s level. It is well above the RBI's comfort level of 5 percent level. The biggest driver of inflation is still food inflation, which accelerated to a three-year high of 18.40  percent in September from 18.8 percent in August  because of supply disruptions due to heavy monsoon and poor storage facilities.

This is the fourth straight month that wholesale inflation has remained above the Reserve Bank of India's comfort zone and could add pressure on it to raise interest rates. A Reuters poll of economists predicted wholesale inflation at 6 percent for the month of September.

The elevated price levels will add more pressure on the Reserve Bank of India – which has clearly signalled that it will target inflation – to raise interest rates even as the economy is growing at its weakest pace in a decade.


At its last policy review on September 20, the RBI's new governor Raghuram Rajan had surprised everyone by increasing its main lending rate by 0.25 percent and clearly signaled that the central bank's focus would be on bringing down inflation. The RBI would be closely watching the September inflation numbers to determine its next rate action. The RBI's next policy review is scheduled for October 29. Economists polled by Reuters have forecast a further 50 basis points of increases in the RBI's main lending rate in six months.

Supply disruptions following heavy rainfall in some parts of the country have driven up food prices, particularly vegetable prices, in recent months. A weak rupee, along with increase in fuel prices, has kept upward pressure on inflation. The consumer inflation data will be released later today evening.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com