Although vegetable prices moderated sharply in September, the central bank will keep the interest rates at current levels for a prolonged period, says Nomura
The Reserve Bank of India (RBI) will keep the interest rates at current levels for a prolonged period to achieve an inflation at around 6% by January 2016 based on consumer price index (CPI), says Nomura in a research report. The RBI will announce its fourth bi-monthly monetary policy on Tuesday.
Nomura said, "Positive real policy rates, lower minimum support prices and a moderation in rural wages all suggest that, while the inflation path will be bumpy, a gradual disinflation should continue."
According to the data from Ministry of Consumer Affairs, vegetable prices moderated sharply (by about 8% month-on-month) in September following sharp increases over the previous two months. "This significant fall in addition to favourable base effect should help lower CPI inflation to nearly 7% y-o-y in September from 7.8% in August," Nomura said.
According to the research note, base effects over the next two months remain significant, and if the downtrend in vegetable prices continues, CPI inflation will likely drop significantly over the next three readings before rising back up in first quarter of 2015 to the 7.0%-7.5% range.
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