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Most rate panel members wary of volatile food prices – Times of India


MUMBAI: The minutes of the RBI’s monetary policy committee meeting held earlier this month reveal that most members were apprehensive about food inflation. The uncertainty in food prices was clouding the overall inflation outlook, RBI governor Shaktikanta Das said.
“In November and December, a resurgence of vegetable price inflation is likely to push up food and headline inflation.We have to remain highly alert to any signs of generalisation of price impulses that may derail the ongoing process of disinflation,” said Das.
Jayanth R Varma, who was the most dovish among the members, said that there would be food price spikes, but they would be transitory and suggested calibrating the nominal policy rate so that the real interest rate goes slightly below 1.5% based on projected inflation two to five quarters ahead. Varma was the only member who voted against the MPC decision to remain focused on the withdrawal of accommodation. The MPC had unanimously voted to keep the repo rate unchanged at 6.5%.
Deputy governor Michael Patra said that inflation remains highly vulnerable to food spikes. He added that the repetitive incidence is causing the accumulation of price pressures in the system and could make inflation persistent.
“In my view, food prices in India are the true underlying component of inflation. They also generate non-trivial external effects that affect other components of inflation as well as expectations. When these spillovers occur and are significant, monetary policy has to pre-emptively act to prevent generalisation, irrespective of the fact that the initial shocks emanate from outside the realm of its influence,” said Patra.
RBI’s Rajiv Ranjan said that going forward, core inflation pressure could remain muted, as monetary policy actions play out and softer growth in input costs and selling prices of the manufacturing sector keep price pressures contained. “Concerns on elevated food inflation, however, is a major source of uncertainty for the inflation outlook,” he said.
“The MPC minutes showed members’ optimism over steady domestic demand and dissipating growth risks on the external front. The inflation trajectory, though, remains relatively uncertain. A unanimous hold for the December meeting shows members remain in a wait-and-watch mode, but with a softening in their earlier hawkish bias,” said Rahul Bajoria, an economist with Barclays. On growth, the members felt that continued strengthening of manufacturing activity, buoyancy in construction, and gradual rural sector recovery are expected to enhance household consumption.


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