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"The long-term concern is that the independence of the RBI is eroded," warned the research firm. "Any perception that a policy would be maintained for the benefit of the government could reverse the success of the central bank over the last five years, and lead to a permanent rise in both inflation expectations and inflation. the next five years in the medium term. "
India has managed to lower its price pressures significantly in recent years. According to data from the World Bank, the CPI rose by 3.332% in 2017, compared to 10.908% in 2013.
"I consider that two key rate cuts in RBI this year are premature and non-proactive moves, because growth is slowing down, but not to the point of justifying an aggressive move," said Sakpal of ING.
The RBI's policy can "do nothing" on supply-side inflation influences, such as the monsoon season and oil prices driving food and fuel prices, he declared. The central bank should instead use higher rates to adjust future consumer demand for food and fuel.
"Monetary policy influences demand more effectively and could have been proactively guided to anticipate future pressure on demand-pulling prices, not to feed it by lowering interest rates," Sakpal said.
Biswas of IHS Markit, however, said that inflation figures are still well within the target range of the central bank. But with core inflation already above 5% and a rise in the expected overall CPI, he says the RBI "probably does not have the opportunity" to further reduce rates in the near term.
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