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Food inflation pressures showing little signs of abatement in near-term: Das

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Last Updated24/08/2024

With persistent food inflation and pick up in household inflation expectations, monetary policy needs to be vigilant,RBI Governor Shaktikanta Das said.

In the latest minutes from the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting held from August 6 to 8, 2024, RBI Governor Shaktikanta Das emphasized the need for vigilance in monetary policy due to persistent food inflation and rising household inflation expectations.

Despite expectations that headline inflation for July and the second quarter of FY 2024-25 might benefit from base effects, the ongoing pressure from food prices necessitates a cautious approach in monetary policy.
The six-member MPC, by a 4:2 majority, decided to keep the repo rate unchanged at 6.5% for the ninth consecutive time.
He noted that while factors like a good monsoon, improving kharif sowing, and favorable rabi season output might ease food inflation, uncertainties remain due to adverse weather events, geopolitical tensions, and financial market volatility..

On the growth front, Governor Das highlighted India's steady growth trajectory, driven primarily by domestic factors. The agricultural sector is expected to boost rural consumption, while urban consumption remains stable.
Government capital expenditure continues to be robust, and private corporate investment is gaining momentum, with capacity utilization reaching its highest level in 11 years. The healthy balance sheets of banks and corporations provide a favorable environment for private sector investments to accelerate.

RBI Deputy Governor Michael Patra supported maintaining the status quo on the repo rate. He argued that this divergence has stalled the alignment of headline inflation with the target.
However, external MPC members Ashima Goyal and Jayanth Varma advocated for a 25 basis points (bps) cut in the repo rate and a shift to a neutral stance.
while Varma criticized the current monetary policy as being excessively restrictive, leading to an unacceptable growth sacrifice.
MPC member Rajiv Ranjan also highlighted the persistent nature of food inflation, noting that it has averaged 8% since July 2023 and contributed to approximately 75% of headline inflation during April-June 2024.
Shashanka Bhide, another MPC member, stressed the importance of a progressive decline in food inflation to achieve the target of 4% headline inflation in a sustainable manner.