Cautioning the RBI against any rate cut, the Paris-based OECD has said that it should continue with the tight monetary policy as inflationary expectations are still high.
“In India, still-high inflation expectations call for a continuation of the tight monetary policy stance,” the Organisation for Economic Cooperation and Development (OECD) has said in its Economic Outlook report.
RBI Deputy Governor H R Khan too had expressed similar opinion and warned against “early celebrations” over recent fall in inflation.
“Inflation still has a long way to go,” Khan had said, elaborating “structural issues” like input costs, wage burden, food prices, protein-driven inflation and rural areas witnessing wider inflation pressures.
The Reserve Bank is scheduled to announce its monetary policy review on December 2. Industry has been demanding a rate cut in view of fall in inflation and the need to push growth.
While the WPI inflation in September dropped to a five year low of 2.38 per cent, the retail inflation too was at its lowest since January 2012 at 6.46 per cent during the period.
The OECD further said that India not only needs to continue with fiscal consolidation but should also improve its quality, rebalancing expenditures away from subsidies and towards public investment.
The Reserve Bank has been maintaining a tight monetary policy stance in order to tame inflationary expectations.
For the fourth time in a row, RBI kept key interest rates unchanged in its previous policy review on September 30 and said it will not cut them unless inflation moderates to anticipated levels.
The growth has slumped to sub-5 per cent for two consecutive fiscals. It fell to 4.7 per cent in 2013-14 and is estimated to be between 5.4-5.9 per cent in the current fiscal.
In April-June quarter economic growth accelerated to 5.7 per cent.
OECD is a grouping of 34 countries, mostly developed nations.