RBI seems more worried for inflation than demonetisation

The sixth bi-monthly policy which was announced on February 8, kept the repo rate unchanged at 6.25 per cent. The Sensex after the announcement lost nearly 200 points, however, it made a smart recovery and closed down at 45 points.

The Reserve Bank of India (RBI) kept interest rates on hold. This move surprised the market, which had leaned heavily towards expecting a cut as the government's cash curb had weighed heavily on economic growth. It seemed that the apex bank is more concerned for inflation than demonetisation, as no major announcement on demonetisation came from the RBI in the recent monetary policy meet.
 
With much of India's economic activity still cash-based, it may have a chilling effect on business. However, RBI Governor Urjit Patel called the effects of demonetisation transitory and instead, pointed to concerns that a fire sale in perishable food was distorting on what could be a worrying outlook for inflation.
 
Core prices and sticky inflation were relatively high, which seems to be the major reasons for RBI to hold on a rate cut and it also looks like RBI may not cut interest rates in the near future as well. Besides, RBI will meet for the seventh monetary policy on April 5-6.