MUMBAI:
RBI
's members in the
monetary policy committee
have expressed
concern
regarding food inflation, which has not sufficiently moderated. Fear of
food prices
rising further due to adverse weather has forced them to keep
rates on hold
and liquidity in check, minutes of a recent MPC meet, which were released on Friday, showed.
"The impact of exceptionally warm summer months on 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," RBI governor Shaktikanta Das said meeting held on June 5-7.
Das said that while the consumer price (retail) inflation was moderating, it was happening at a very moderate phase.
Deputy governor Michael Patra was even more hawkish. "The speed of the easing of inflation has been disappointing so far, even from a cross-country perspective. Food prices are persisting for too long as the principal impediment to a faster disinflation," said Patra.
Patra was also explicit in linking the RBI stance on rates to food prices. "Food prices are holding back any consideration of possible changes in the monetary policy stance," he said. RBI executive director Rajiv Ranjan noted that food, with a weight of 45.9% in CPI, contributed to three-fourths of the headline inflation in April 2024 compared to about 40% a year ago. "Discounting the likely one-off drop in inflation to below target rate in Q2FY25 due to favourable base effects, the ongoing disinflation/process, though gradual, is expected to continue over the second half of 2024-25," he said.
External member Shahsanka Bhide voted to keep rates on hold citing food prices. "As a major part of these price pressures relates to food inflation, a watchful approach is appropriate to ensure that there are no spillovers of high food inflation to the prices of other items in the consumption basket," said Bhide.
However, other external members economists Ashima Goyal and Jayanth Varma strongly advocated for a 25-basis-point (100bps = 1 percentage point) reduction in the repo rate and a shift to a neutral stance. Goyal argued that keeping the real policy rate above the neutral level for an extended period could hamper growth. With inflation projections for 2024-25 at 4.5%, maintaining the current repo rate would result in a real repo rate higher than necessary, potentially slowing down growth.
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