Ab initio, the MPC recognised that its assessment of underlying conditions will likely be clouded by demonetisation effects that were unfolding in the form of transient disruption of cash-intensive segments of the economy, an abrupt compression of demand, restrained discretionary spending and fire sales of perishables that would reduce inflation temporarily.
Accordingly, it decided – unanimously again – to look through these ‘transitory but unclear effects’ that were influencing the outlook disproportionately. It kept the policy rate unchanged through these meetings, but noting that inflation excluding food and fuel was setting a floor to headline inflation by exhibiting downward inflexibility.