RBI studies all indicators for policy: Subbarao
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The Reserve Bank of India looks at all measures of prices, and economic and financial indicators, while setting its monetary policy, its chief said on Thursday.
Governor Duvvuri Subbarao said there have been calls for cutting policy rates following a sharp fall in the wholesale price index (WPI), but the central bank assessment was not based on just one measure.
Apart from the WPI, the government also releases consumer prices for rural and agricultural labourers, urban non-manual and industrial workers.
Subbarao said food items constitute a large portion of consumption baskets given India's low income levels, but their weighting differ in consumer price and wholesale price indices.
Similarly, the weighting of fuel in the WPI is 14 per cent while in the consumer price index it ranges between 6-8 percent, he said.
"Such divergences in alternative inflation complicates the conduct of monetary policy," he said.
Subbarao said new price indices, contemplated by the government, to capture the consumer prices in urban and rural areas, would be helpful.
"Furthermore, a WPI index with a more recent database and advanced coverage including that of the service sector shall pave the way for a producer price index," he said. Data published on Thursday showed the WPI fell 1.3 percent in the 12 months to June 20. The annual inflation rate was 11.91 per cent during the corresponding week of 2008.
The Reserve Bank last cut its repo rate, at which it lends funds to banks, by 25 basis points to 4.75 percent in April. The short-term rate has been cut by 425 basis points since last October.
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