Mumbai: The Reserve Bank of India (RBI) will have to watch for any impact on inflation from the new goods and services tax (GST), which will harmonize 11 state and central levies into a national sales tax, outgoing RBI governor Raghuram Rajan said on Tuesday.

Rajan left key policy rates unchanged, as inflation hit a nearly two-year high, and he cautioned that price adjustment from GST could add to generalized inflation in the economy.

He said the central bank has to factor in the impact from GST in the medium term inflation target beyond April 2017.

On Monday, Parliament approved India’s biggest overhaul of indirect taxes after the lower house ratified a constitutional amendment Prime Minister Narendra Modi called a major step toward making it easier to do business in India. Reuters

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