RBI getting inflation down to Avg. level of 4%: HDFC Bank

The RBI is now clearly (going by both its recent policy statements) fixated on getting inflation down to an average level of 4% over the long term, choosing not to take advantage of the mandated 2 per cent leeway on either side of this level. This means that a few months of extremely low inflation data is unlikely to sway its decisions substantially. In the RBI MPC policy minutes released yesterday, Dr. Chetan Ghate, MPC member, highlighted, “…it is highly unlikely that a single data point of 3 per cent for April 2017 is the harbinger of 4 per cent for the durable future; …at this juncture, it would be prudent to wait and watch to see (i) whether headline inflation durably evolves in line with the medium-term inflation target of 4 per cent within a band of +/- 2 per cent; and (ii) how other risks (fiscal risks in terms of state farm loan waivers, GST, HRA, the monsoon) impinge on the medium term target- Abheek Barua, Chief Economist, HDFC Bank.