As the inflation is hardening and growth rate is picking up, Chief economic adviser Arvind Subramanian on Monday stated that the scope for Reserve Bank of India (RBI) to lower interest rate may be limited.
By 7 February, the RBI is going to announce next monetary policy review. If growth is growing up and inflation is rising, there is less scope of monetary easing.” he told PTI.
RBI had last cut interest rate by 25 basis points to 6 percent on August 2, 2017.
Retail inflation crossed the RBIs comfort level and rose to 5.21 percent in December on rising in prices of food items. The retail inflation, based on Consumer Price Index (CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent. The retail inflation rose to 5.21 percent in December 2017 due to a tremendous rise in food prices.
The Reserve Bank has been asked by the government to keep inflation at 4 percent, plus or minus 2 percent, and its rise beyond the comfort zone will put pressure on the central bank not cut interest rate.
Subramanian also stated that with the impact of Goods and Services Tax (GST) demonetization will be less or zero.