‘RBI focus on core inflation confusing for markets’: Murthy Nagarajan

Murthy Nagarajan, Head of Fixed Income at Tata Asset Management, expressed confusion among Indian markets over the Reserve Bank of India's (RBI) recent focus on core inflation, rather than headline inflation, in its monetary policy decision. Nagarajan stated that the RBI's use of core inflation language was unexpected, as they had been looking at headline inflation.

This shift in focus has led to uncertainty, and if core inflation reaches 4%, the RBI may not raise interest rates in 2026-27. The strong inflows of Foreign Currency Non-Resident (Bank) deposits, possibly reaching $100 billion, and the projection of rising core inflation are also influencing the market's stance. The RBI's dovish stance is due to uncertainties surrounding the war, rainfall deficit, oil prices, and economic growth.

The RBI seems to be buying time to evaluate the growth and inflation trajectory before deciding on any rate hikes.