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MUMBAI, Feb 17 (Reuters) - The governor of India's central
bank said it needs to look beyond recent muted headline
inflation figures and focus on trends in core inflation, which
excludes more volatile food and fuel prices.
Recent declines in vegetable prices could be short lived,
Urjit Patel said in an interview with CNBC TV18.
Falling food prices helped cool India's consumer inflation
rate to 3.17 percent in January year-on-year, the mildest
reading in at least five years and well below the Reserve Bank
of India's medium-term target of 4 percent.
But core inflation accelerated to around 5.1 percent,
pointing to building price pressures in the broader economy.
India's wholesale prices rose at the fastest pace in
two-and-a-half years in January as fuel prices climbed,
reinforcing the Reserve Bank of India's surprise decision last
week to move to a neutral policy stance as inflation risks grow.
"We also find commodity prices have firmed up globally,"
Patel said, in an initial snippet of the interview that aired
early on Friday.
Global crude oil prices are up more than 23 percent since
The RBI is expected to keep interest rates on hold until at
least the second half of next year, according to a Reuters snap
poll taken after earlier this month after the central bank's
change in policy stance.
Patel has faced some criticism from bankers for not
adequately guiding the markets on the central bank's thinking,
especially after it abruptly shifted its stance from
"accomodative" last week.
"The committee felt that inflation excluding food and fuel
is something that has been stubborn since September-October and
has shown little sign of coming decisively below 5 and that was
the main reason why we had to look through headline inflation,"
Asia's third-largest economy is still limping back to health
after Prime Minister Narendra Modi's Nov. 8 decision to outlaw
old 500- and 1,000- rupee banknotes wiped out 86 percent of the
currency in circulation overnight.
The move dampened consumer and corporate demand, sending
prices lower, though activity is slowly returning to normal.
Patel said the RBI's monetary policy committee will continue
to monitor how long the disinflationary pulse from the cash
crackdown will last.
"It's most likely going to be short lived," he told CNBC.
"That was the reason that MPC thought that we needed to have
flexibility going forward, therefore the shift of stance form
accomodative to neutral".
(Reporting by Suvashree Choudhury; Additional reporting by
Tanvi Mehta; Writing by Swati Bhat; Editing by Kim Coghill)