RBI Remains Cautious on Inflation Amid Food Price Uncertainty
The Reserve Bank of India’s (RBI) monetary policy committee (MPC) members expressed caution regarding inflation due to ongoing uncertainty in food prices, as revealed in the minutes of the MPC meeting released on February 22. RBI Governor Shaktikanta Das highlighted that food price uncertainty, coupled with growing geopolitical tensions and supply chain disruptions, pose significant risks to the inflation outlook.
During the February round of monetary policy review, Governor Das emphasized the need for restrictive monetary policy to maintain downward pressure on inflation while minimizing the output costs of disinflation. Deputy Governor Michael Debabrata Patra echoed this sentiment, underscoring the importance of maintaining a cautious approach to monetary policy.
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Governor Das further warned against recurring food price shocks, stating that they could disrupt the ongoing disinflation process and potentially lead to the de-anchoring of inflation expectations and the generalization of price pressures.
Recent data released by the Ministry of Statistics and Programme Implementation revealed that India’s headline retail inflation rate decelerated to a three-month low of 5.10 percent in January, primarily driven by easing food prices. Economists had anticipated a year-on-year rise in prices of 5.09 percent for the first month of 2024, aligning closely with the actual CPI inflation figure.
The decline in January’s inflation was attributed to weaker price momentum in food items, with the Consumer Food Price Index decreasing by 0.7 percent from December 2023. Specifically, the price index for vegetables experienced a 4.2 percent month-on-month decline, while fruits saw a 2.0 percent decrease.
Despite the moderation in inflation, the RBI retained the key interest rate repo at 6.5 percent during the February monetary policy review, marking the sixth consecutive pause in the past year. Since April 2023, the RBI has maintained the repo rate unchanged at 6.5 percent after a 250 basis point increase in May 2022, driven by signs of moderating inflation.
The central bank’s decision reflects its ongoing commitment to addressing inflationary pressures while ensuring economic stability and growth. The RBI’s vigilant stance underscores the importance of effectively managing inflationary risks amidst evolving global and domestic economic conditions.
