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RBI governor cautions of uncertain global oil prices adverse impact on inflation

05 Mar 2015 Evaluate

The Reserve Bank of India (RBI) after announcing a surprise rate cut outside the policy review cycle, has cautioned that the uncertainty surrounding global oil prices can have an adverse bearing on the inflation outlook, though it will endeavour to bring it down to the target of 4 percent by 2016-17.

The RBI and the government had last month entered into an agreement to lower inflation to below 6 percent by January 2016 and further to around 4 percent by March next year. The central bank will be deemed to have missed its target if consumer inflation remains above the 6 per cent level for three consecutive quarters during 2015-16 or if it remains below 2 per cent for three consecutive quarters during the year 2016-17. In case of a failure, RBI will have to specify the reasons.

The RBI Governor Raghuram Rajan, has though stated that, 'The RBI will seek to bring inflation rate to the mid-point of the band of 4 percent, (+/-) 2 percent provided for in the agreement, i.e., to 4 percent by the end of a two year period starting fiscal year 2016-17'. For other risk to inflation, RBI said, emanate from any possible spill over of volatility from international financial markets. RBI is of the opinion that softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6% in the second half.

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