The Reserve Bank of India kept its policy repo rate unchanged at 6% on Thursday for the fourth straight meeting and stuck to its 'neutral' stance as expected to support an early recovery in economic growth as inflation eases. Excerpts from RBI MPC panel's interaction with media
Could you further explain the impact of the HRA on inflation?
Executive Director M Patra: In the monetary policy report of April 2016 we did a detailed analysis of the VII Pay Commission and its recommendation’s which include salaries, allowances etc. Of this the HRA (House Rental Allowance) has a bearing on inflation, housing has a weight of 9.5 per cent in the CPI (Consumer Price Index), so that what happens in the housing [sector] matters to the path of inflation.
When the CSO (Central Statistics Office) measures housing, while it collects rentals from all over the country, for the government housing it imputes a house rent, which is the HRA. Now, under the VII Pay Commission’s recommendations, the HRA was increased by 105.6 per cent, so that is what it would impute, that is not real inflation it is just a statistical effect, which is bossing up CPI. So just to focus on the real underlying inflation pressures, we are excluding HRA from the CPI.
For the first half, if you exclude housing the projection comes down by at least 356 bps (basis points), which is the full measure of HRA that started in Ju...