Despite the huge drop in WPI inflation, the RBI decided to leave interest rates unchanged as a sharp fall in the value of the rupee, is likely to see imported inflation, particularly oil, pushing Inflation in the country higher. This may have played on the mind of policy makers in the RBI.
Today's decision brings to pause the successive rate cuts initiated in the past by the RBI.
"On the inflation front, easing commodity prices at the global level and weaker pricing power of corporates at the domestic level are having a softening influence. Given that food inflation remains high, the inflation outlook will be influenced by concerted efforts to break food inflation persistence. The inflation outlook going forward will be determined by suppressed inflation being released through revisions in administered prices, including the minimum support prices (MSP) as well as the recent depreciation of the rupee," the RBI said in a statement.
"The Reserve Bank's monetary policy stance will be determined by how growth and inflation trajectories and the balance of payments situation evolve in the months ahead. It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth. While several measures have been taken to contain the current account deficit, we need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows. The Reserve Bank stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments" the RBI said.