Decline in manufacturing inflation comforting: Rangarajan

"It is slightly higher than what was expected, but not very far-off from what one was hoping. Clearly the decline in manufacturing inflation is the critical number that monetary authorities look at. Therefore, there is comfort in that direction," he noted.
 
Going forward, Rangarajan sees non-manufactured products inflation in the range of 3 to 4 percent. At the moment, headline inflation cannot be completely overlooked, he added.

Here is the edited transcript of the interview on CNBC-TV18.

Q: The February Wholesale Price Index (WPI) number has come in at 6.84 percent, a tad higher than 6.6 percent in January. Would you worry about this or is the trajectory still in place?

A: It is slightly higher than what was expected, but not very far-off from what one was hoping. The other important thing is clearly the decline in manufacturing inflation which is the critical number that monetary authorities look at. Therefore, there is comfort in that direction.

Q: The non-food manufacturing inflation and not just manufacturing, the core index has fallen to 3.8 percent versus 4.1 percent that we got in January. Does this give more comfort to a monetary authority?

A: I think so. The food inflation is caused by a variety of factors, some of which are not quite clearly under the control of the monetary policy instruments. We certainly need to take care of it because ultimately persistence of food inflation spills over to other sectors as well.

Coming more critically to the fact that is important to the monetary authorities is the core inflation. Non-food manufacturing inflation has come down below 4 percent, which is certainly a very favourable factor.

Q: There would be two points which people would look forward to argue against a rate cut, one is CPI has come in at 10.9 percent and Current Account Deficit (CAD) maybe smaller but, it is not a great comfort. Overall, the CAD still stands at probably 6 percent plus for the last quarter. Do you think that might deter the Reserve Bank of India (RBI) or should it deter the RBI?

A: Basically, if you look at it from the angle of the CAD, the role of monetary actions is primarily to contain demand pressures. That means it is responsible for containing the imports by reducing demand. That is the range which monetary policy is supposed to work with as far as the containment of CAD is concerned.

But, given the situation in which growth has just started picking up and the fact that non-food manufacturing inflation is below 4 percent, it gives a greater room for monetary authorities to act.