Rajan still worried on inflation, pins recent fall on low base

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Mumbai: As the clamour for a rate cut by RBI grew with the US Fed leaving ultra-low rates intact, Governor Raghuram Rajan on Friday kept all guessing about his next monetary policy move saying the ‘key task’ is to keep inflation low.

He further said the “excessively low” level of retail inflation at 3.6 percent last month was due to “base effects”, excluding which it should be around mid-5 percent.

“The key task is to keep inflation low, not just today but well into the future,” the Governor said while addressing industrialists and bankers at an event here.

Rajan has been under pressure to cut the rates further, with the government and industry leaders repeatedly stressing on the need to lower the cost of capital to give a boost to the economy, especially in the wake of retail inflation hitting record low levels and wholesale inflation actually being in the negative zone for 10 months in a row.

Delivering the fourth CK Prahlad memorial lecture on the morning after the US Federal Reserve decided to keep its near zero rates on hold for the eight year in a row, Rajan said, “We have to be careful while pursuing growth and have to make it sustainable.” He said that keeping inflation low on a sustained basis is key to achieving this target.

Explaining further, Rajan said, “The 3.6 (percent) we got last month is I think rendered excessively low by base effects (and) if you add back the base effects, it is about mid-5s.”

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