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RBI keeps policy rates unchanged, cuts inflation expectation sharply

PW Bureau

RBI Governor Urjit Patel, however, said that there could be changes to the policy course depending on how oil prices move New Delhi: The Reserve Bank of India (RBI) has made no changes to the policy rates but has cut its inflation expectations sharply, for now, because of the recent swing in crude oil prices.

‘Policy course could change soon’

RBI Governor Urjit Patel, however, said that there could be changes to the policy course depending on how oil prices move. “We need a few more data points to ascertain the durability of the decline in inflation that has taken place in a very short period of time — especially with respect to oil where the implied volatility is higher now than in October, although the price of oil has come down… With incoming data, our projections will change. We will take a call as and when required,” he said.

‘Inflation subject to sudden reversal’

Even as the Central bank revised down its inflation forecast to 2.7-3.2 per cent in the second half of the current fiscal year from 3.9-4.5 per cent earlier, it warned that there could be a sudden reversal in the prices of certain commodities. Also, the central bank expects CPI inflation to be at 3.8-4.2 per cent in the first half of 2019-20, as against 3.8 - 4.5 per cent projected in the October policy. In his opening remarks, Patel said, “there is a risk of a sudden reversal, especially of volatile perishable items.” “Volatility indicators of crude oil prices and financial markets have not softened, suggesting that there remains considerable uncertainties in oil prices and international financial markets outlook, depending upon other factors such as Opec supply decision later this week and how the trade war, truce, or otherwise, plays out,” he added. Adding to what Patel said, RBI’s Deputy Governor Viral Acharya said, “We really need some time in order to assess the inflation outlook better, and then we will be able to take a further policy action, if necessary.”