The Reserve Bank of India (RBI) believes there is still time for inflation to ease as input costs remain high and food inflation is structural.
“Inflation has a long way to go,” said RBI deputy governor H R Khan at a speech in an event here today adding that markets have perhaps become complacent.
India’s retail inflation has eased to 6.46% in September led by a drop in food as well as fuel inflation. The RBI has stated that it aims to bring down inflation to 8% by January 2015 and to 6% by January 2016.
The RBI will release its bi-monthly policy on December 2. On the back of the recent sharp fall in retail inflation along with a drop in global crude oil prices, expectations of a rate cut have gained momentum in markets off late. Bond yields have fallen to a 15-month low on such expectations. The 10-year 8.40%, 2024 benchmark bond is trading around 8.20% today.
Khan said that the fall in global crude oil prices was a “boon” for India. Brent crude has fallen nearly $20 per barrel over the last two months. The soft oil prices along with a stable currency augurs well for domestic inflation as well as the currenct account deficit position of the country.