Mumbai: With food inflation remaining persistently high, any hasty action will cause more harm than good. The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) should continue with its disinflationary policy stance to ensure that inflation durably aligns to the target of 4 per cent said the RBI governor Shaktikanta Das while voting for a status quo in policy rates and stance earlier this month, showed the minutes of the policy meeting released on Friday. The MPC voted 4:2 in favour of retaining the benchmark repo rate at 6.5 per cent for the eighth time in a row.
“With persistently high food inflation, it would be in order to continue with the disinflationary policy stance that we have adopted.
Any hasty action in a different direction will cause more harm than good. It is important that inflation is durably aligned to the target of 4.0 per cent. Price stability is the bedrock for high and sustainable growth,” said Das.
According to Das, retail inflation would moderate to 4.5 per cent in 2024-25, higher than the mandate of 4 per cent. Several members of the MPC also raised concerns relating to price worries in the coming months owing to exceptionally warm summer months on the output of “certain perishables; a likely rabi production shortfall in some pulses and vegetables – particularly potatoes and onions; and the upward revisions in milk prices, warrant close monitoring.”
A normal monsoon may eventually lead to easing of price pressures in key food items. Large favourable base effects could lead to a temporary and one-off undershoot of inflation to below the target rate in Q2, before rising again in Q3 and Q4 of 2024-25 said Das.
Food prices have a weight of 45.9 per cent in the CPI. In April 2024, food prices contributed nearly 75 per cent to the headline inflation up from 40 per cent a year ago.
The Consumer Price Index inflation (CPI) softened to 4.7 per cent in May 2024 – the lowest in the last 12 months, however, food inflation (y-o-y) remained unchanged at 7.9 per cent in May.
The RBI has hiked policy rates by 250 basis points between May 2022
and February 2023, since then it has kept the repo rate unchanged at
6.5 per cent.
Two external members of the six member MPC namely Jayanth Varma and
Ashima Goyal both voted for a cut in the repo rate and change in the
policy stance from withdrawal of accommodation to neutral. Goyal said
that if headline inflation approaches target (of 4 per cent) and core
inflation is below the target, it implies that India's growth is below
potential which makes the case for real policy rates to fall safely.
