RBI MPC meeting minutes reveal resurfacing inflation concerns
Reserve Bank of India (RBI)
With retail inflation rising again in July-August due to a surge in vegetable prices, the Reserve Bank of India's rate-setting council has emphasised on the importance of closely monitoring the situation given the danger of El Nino and uneven rainfall.
The Monetary Policy Council (MPC) observed in its assessment that monsoon and kharif sowing progress improved significantly in July, but the impact of the uneven rainfall distribution required close monitoring.
In July, retail inflation in India reached a 15-month high of 7.44 percent. On the other hand, Food inflation, which accounts for over half of total consumer price inflation, accelerated to 11.51 percent, the highest level since April 2020.
"While the vegetable price shocks are expected to be quickly corrected with the arrival of fresh crops, there are risks to the food and overall inflation outlook from El Nino conditions, volatile global food prices, and skewed monsoon distribution—all of which warrant close monitoring," media reports quotedRBI Governor Shaktikanta Das as saying at a recent Monetary Policy Committee meeting.
The MPC, which consists of three members from the central bank and a comparable number of external members, convened on August 8–10 and unanimously decided to keep the benchmark repurchase rate (repo) at 6.50 percent.
The RBI boosted its inflation prediction for the current fiscal year ending March 2024 to 5.4 percent from 5.1 percent before, citing food price pressures. Inflation was 6.2 percent in the July–September quarter, much higher than the 5.2 percent predicted before.
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"Given the likely short-term nature of the vegetable price shocks, monetary policy can look through the first-round impact of fleeting shocks on headline inflation," Das explained.
Furthermore, the destabilisation of the international inflation environment as a result of geopolitical developments was recognized by RBI Deputy Governor Michael Patra.
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