The main outliers to the regional disinflationary
trend are Egypt and Iran, where varying degrees of subsidy reforms, supply bottlenecks and exchange rate weakness has kept CPI in double-digits.
Price increases last month were fairly broad-based, suggesting the recent disinflationary
trend had ended.
Further action will depend on developments on the fiscal front and on the disinflationary
Announcing the sixth bi-monthly monetary policy review, Rajan said: "Given that there have been no substantial new developments on the disinflationary
process or on the fiscal outlook since January 15, it is appropriate for the RBI to await them and maintain the current interest rate stance." RBI announced a slew of initiatives to develop markets, including allowing foreign institutional investors to re-invest government bond coupons even when their investment limits are exhausted.
Policy rates close to the zero lower bound constrain the ability of the monetary policy authorities to respond when faced with a disinflationary
shock, such as the ones described here.
The central bank's effective stalling allowed the eurozone's disinflationary
process to proceed to the point where yields on German bunds have reached record lows.
Generally, across the globe, we're in a bit of a disinflationary
environment, so I think there should be spillover effect of that coming through to us," Khokhar told Gulf News.
pressures remain strong and the labour market showed further signs of weakening," HSBC economist Qu Hongbin said in a statement accompanying the data.
Governor Raghuram Rajan said in his policy statement that RBI will continue to closely monitor inflation developments, and remains committed to the disinflationary
path of taking Consumer Price Index (CPI) inflation to 8 per cent by January 2015 and 6 per cent by January 2016.
Rajan had said that the increase was needed to set the economy securely on a disinflationary
trend is even more pronounced in Europe, where the inflation rate was 3% at the end of 2011; 2% at the end of 2012; and has dropped to 0.7% in October.
In light of the disinflationary
environment and a sharp deceleration in domestic demand, we have revised down our fiscal deficit projections, which we now expect to arrive at 4.0% in 2013 and 3.6% in 2014.