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Global inflation easing, we can import disinflation: Rajan

In his bi-monthly monetary policy announced today, Rajan kept rates unchanged but sounded caution as far as meeting the 2016 consumer price index (CPI) target of 6 percent is concerned.

Reserve Bank of India Governor Raghuram Rajan has continued to keep a tight control on the key policy rates , showcasing his commitment to lower inflation levels. In his bi-monthly monetary policy announced today, Rajan kept rates unchanged but sounded caution as far as meeting the 2016 consumer price index (CPI) target of 6 percent is concerned.

While Rajan continues to be hawkish, in an interview to CNBC Awaaz, he said it is not necessary that the RBI will cut rates only if CPI hits 6 percent, but the central bank will have more room to ease rates if the macro data is near 6 percent.

Commenting on the RBI’s target of 6 percent, Rajan says the economic model hints at a 7 percent CPI inflation and the RBI may hike rates if the target comes higher than 6 percent.

However, Rajan is quick to add that there’s almost a year and a quarter before that target is either achieved or missed.

“There are positive things happening. The minimum support prices (MSP) have increased in double digits and this will help moderate other food prices. The government is also taking significant steps like amending the APMC Act, setting up warehouses and cold storages,” adds Rajan on the possibility of a positive food price shock.

“Globally, food prices and commodity prices are easing. If we import this, we will be importing disinflation and this will help in bringing down inflation,” he further adds.

Transcript to follow soon.

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