"The Reserve Bank of India (RBI) has already reduced its inflation forecast twice this year. It is among the many central banks around the world that has overestimated price pressures in recent quarters. In the Indian case, the surprise has come from food prices. Core inflation is running far ahead of food inflation, which is to be expected as excess capacity in many parts of the economy has shrunk.
The analytical puzzle is whether core inflation will move down towards food inflation, food inflation will move up towards core inflation, or the gap between the two will persist. Especially important will be the new data on inflation expectations of households that are known to adapt to recent trends in salient prices such as food and fuel rather than being anchored near the inflation target...
The current combination of benign inflation as well as slower economic growth means that there is no reason at all for the MPC to increase rates this week. Many of the risks that seem to have dominated the MPC discussions in October have receded..."
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