Collateral benefits of demonetisation will take a while to play out, says RBI Governor Urjit Patel

New Delhi: The Reserve Bank of India needs to look beyond the country's so far muted headline inflation figures, as it has committed to meeting a 4 percent inflation target, said its Governor Urjit Patel in a television interview on Friday.

Patel, in an interview to CNBC-TV18 news channel said, disinflation in vegetable prices in the country could be short lived, and added the central bank needs to focus on core inflation that excludes inflation in food and fuel prices.

"We also find commodity prices have firmed up globally," he said, in an initial snippet of the interview that aired early on Friday.

"I think that in terms of remonetisation, we are proceeding at a pace that is very quick. Therefore we have managed to bring the situation to normal along most of the dimensions after demonetisation," Patel said.

He also added that the collateral benefits of note ban will take a while to play out.

RBI Governor predicted a "sharp V-shaped" recovery for the economy, adding that the quick remonetisation will help growth faster.

Patel further said India was at a "good place" in terms of financial stability and the central bank will manage any sharp volatility in the markets arising out of global developments including concerns over US President Donald Trump`s protectionist policies.

Asia's third-largest economy is still limping back to health after Prime Minister Narendra Modi's November 8 decision to outlaw old 500- and 1,000- rupee bank notes wiped out 86 percent of the currency in circulation overnight.

The Reserve Bank in its policy review meet on February 8 kept key interest rate unchanged at 6.25 percent and said that it is awaiting more clarity on inflation trend and impact of demonetisation on growth.

Headline inflation has been under 4 percent since November, well below the RBI's 5 percent target for March and medium-term target of 4 percent.

RBI has projected retail inflation in the range of 4 to 4.5 percent in the first half of 2017-18 fiscal and between 4.5 percent to 5 percent in the second half.

The monetary policy committee said it is "committed to bringing headline inflation closer to 4.0 percent on a durable basis and in a calibrated manner" and this requires further "significant decline in inflation expectations, especially since the services component of inflation that is sensitive to wage movements has been sticky.

"The committee decided to change the stance from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out," the resolution of the Monetary Policy Committee said.

With Agency Inputs