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Raghuram Rajan Makes Shrewd Call to Keep Inflation in Check

Central bank governor Ragharum Rajan revealed in an interview with CNBC that the Reserve Bank of India (RBI) does not intend to cut interest rates any further going into 2016. The announcement came as a surprise to market onlookers who expected Mr. Rajan to continue to slash interest rates in an attempt to stimulate further growth in the Indian economy. However, Mr. Rajan evidently has his sights on inflation, which has been a longstanding issue for policymakers. “My sense is that the underlying inflation is between 5 – 5.5 percent right now, that’s the sort of run rate, so we probably will get back to that by the end of the year.” He also noted, “[With inflation currently around target], that doesn’t give us a lot of room [to lower rates] below the 6 percent [repo rate].” Inflation in India historically runs well above the 10 percent mark but has dropped significantly over the past year to more manageable levels, and was last reported at 5.1 percent for the month of October, 2015.1 Citigroup is forecasting inflation around 4.8 to 5 percent in the 2016-17 fiscal year.

1 Trading Economics and Ministry of Statistics and Programme Implementation (MOSPI), India.


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