Inflation key pillar of stability for Indian economy: Report

The Reserve Bank's 'neutral' stance keeping core inflation in focus seems prudent and sends a signal that it remains a key pillar of stability for the Indian economy, says a report.

In the recent monetary policy meeting conducted on February 8, RBI Governor Urjit Patel said that one of the main reasons for not cutting the policy interest rates is core inflation being sticky.

Sahil Kapoor, Chief Market Strategist, Edelweiss Broking, said high inflationary expectations, rise in healthcare and education costs are main drivers for core inflation being sticky and structural changes would be required to bring down core inflation.

"Most of stickiness in core is structural in nature apart from inflationary expectations. A neutral stance will enable the central bank to anchor inflationary expectations better," Kapoor said in a research note.

He further noted that the RBI's neutral stance sends a signal that inflation remains a key pillar of stability for Indian economy and accordingly it may choose to stay on hold.

"RBI may choose to stand pat and see through the effect of the loose monetary policy which it practiced over the last 2 years," Kapoor noted.

The Reserve Bank in its policy review meet on February 8 kept key interest rate unchanged at 6.25 per cent and said that it is awaiting more clarity on inflation trend and impact of demonetisation on growth.

The next meeting of the MPC is scheduled on April 5 and 6, 2017.