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Ruling out incremental tightening of monetary policy, a Citigroup report has said the Reserve Bank's interim target of 8 per cent inflation in January 2015 seems "attainable", provided there is normal monsoon.
The reversal in vegetable prices has provided some relief on the inflation front in the last two months as it has come off from 11.2 per cent in November to 8.8 per cent currently.
According to official data, retail inflation fell for the second consecutive month and eased to 24-month low of 8.79 per cent in January mainly due to a drop in food prices.
Vegetable prices on annual basis rose 21.91 per cent in January, a slower pace than 38.76 per cent recorded in the previous month.
"Going forward, assuming normal monsoons, the RBI's interim target of 8 per cent in January 2015 appears attainable and hence we do not envisage incremental policy tightening from current levels," the Citigroup research report said.
According to the financial services major, given the trend in core consumer price inflation (excluding food and fuel), policy rates are likely to remain higher for longer.
In the third quarter review of monetary policy, Reserve Bank Governor Raghuram Rajan raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation.
RBI factors in both, consumer price index as wholesale price index based inflation data in its monetary policy. The next, monthly WPI data is scheduled for release on Friday.
Recently, a RBI appointed committee has suggested the central bank should focus on CPI based inflation and aim to bring it down to 8 per cent by January next year, and to 6 per cent by January 2016.
Shifting its stance of monetary policy towards targeting retail inflation, the RBI in its monetary policy said inflation an "inequitable tax" and may exceed 8 per cent by March end.