RBI policy: Why the pause may be setting up a future rate hike

There is comfort in Q1 inflation, which came in lower at 3.9% against the RBI projection of 4.2%. But the next three quarters will witness rising inflation. Now the RBI’s projection for the year is down again very marginally to 5% due to this downward revision. But this lowering of the forecast is symbolic of inflation not being a worry today. Also, the statement reiterates, on more than one occasion, that inflation is largely on the supply side and that core inflation is stable, and even lower, if we exclude gold. This probably shows there is no urgency to take rate action.