Pause, and then?

The RBI opted to wait and watch before taking any action on monetary policy. This was perhaps the only sensible option in the current uncertainty. With inflation and inflationary expectations still higher than RBI’s comfort level, it was right not to cut rates despite the clamour from industry. Real interest rates are still negative, and unless inflation comes down, there is a danger the wage price spiral could continue to push inflation up. Core inflation, consisting of the Wholesale Price Index excluding food and oil prices, is still high — something the RBI would need to watch before cutting rates.

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