Rates may rise if price spike spreads from food items: Shaktikanta Das
Mumbai, Aug 25, 2023
RBI governor Shaktikanta Das has indicated that rates may need to rise if there is a second-round impact of food price shocks on broader prices.
“We need to be ready to pre-empt any second-round impact of food price shocks on the broader inflationary pressures and risks to anchoring of inflation expectations,” Das said, minutes of the monetary policy committee (MPC) meeting showed. In the meeting, held between August 8-10, the MPC voted unanimously to hold rates for a third time this year.
Voting for a pause in the policy rate, Das said that given the likely short-term nature of vegetable price shocks, monetary policy could look through the first-round impact of fleeting shocks on headline inflation. “The global economic environment continues to be uncertain. Financial conditions remain tight and volatile. Inflation remains above target in major economies. Amid all these, India stands out for its resilience and stability and is emerging as the new growth engine of the world,” he said.
Other MPC members also agreed on the need to look through the current round of high inflation. Deputy governor Michael Patra said: “Our surveys suggest that households’ inflation perceptions have been impacted by these food price developments — which is also reflected in consumer perceptions regarding the price level and inflation — but they should stabilise over the year ahead as supply conditions improve.”
Shashanka Bhide, one of the external members, said despite adverse external economic conditions and uneven monsoon distribution, the Indian economy displayed resilience during the initial four months of FY24. While Q1 FY24 witnessed a substantial drop in headline inflation, the projection for FY24’s inflation rate remains above 5%, indicating a challenge in reaching the 4% policy target, he added. Bhide recommended retaining the current policy rate and stance to balance inflation moderation and growth support.
External member Ashima Goyal noted that global inflation moderation and healthy growth support a possible soft landing
[The Times of India]
