Appropriate for RBI to wait, act with restraint
On the inflation front, clearly, the headline WPI inflation in October and November has surprised on the downside, as the pace of moderation was faster than anticipated, owing to the appreciation in rupee seen in September and October. WPI inflation has eased by 83 bps between September and November, with core WPI inflation registering a sharper drop of 124 bps in the same period, indicative of abating demand side pressures. More importantly, this has been accompanied by an easing of sequential momentum (defined as the three-month moving average of seasonally adjusted m-o-m changes) in both headline WPI (which reached a 10-month low of 0.47% in November) and core WPI (which reached a seven-month low of 0.29% in November) respectively. Despite the apparent moderation, two factors perhaps guided RBI to maintain a cautious stance — across board inflation indicators do not project a similar inflation trajectory and preferred to establish the ebbing WPI inflation pressures by waiting another month, since there remain upside risks to WPI inflation
To augment our reasoning, CPI inflation has been
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