Food inflation remains insulated from demonetisation: YES Bank

Defying exaggerated concerns of supply disruptions and increase in inflation post demonetisation, on the ground evidence suggests a comforting picture. #1Backed by normal monsoon, food supply arrivals have been adequate so far.#2 High frequency data on food prices indicate no impact of demonetisation with prices of most food items witnessing a seasonal fall in the month of November so far.  Most encouraging development has been in case of vegetables, where prices have contracted 4 percent since last month.The government has effectively backed its decision of demonetisation with follow up measures to ease cash crunch in the wholesale mandis. #1 Traders registered with various APMCs can avail withdrawal facility of Rs 50,000 per week from their own bank account. #2 Additionally, in order to ensure smooth progress of Rabi sowing, the government has also allowed farmers to withdraw Rs 25,000 per week against crop loans sanctioned and purchase seeds with old denomination notes.The theme of ongoing gradual disinflation in the economy is yet to play out completely. With commendable and prompt steps taken by the government in supporting critical sectors like the food economy, I expect CPI inflation to fall below 4 percent in the coming months. This will create room for an immediate 25 basis points (bps) rate cut from the RBI in its upcoming policy review in December, and upto 75 bps by March 2017.Notwithstanding the short term adjustment challenges in few sectors of the economy due to the ongoing demonetization exercise, I am confident that the long term benefits of swachh vitteykaran ushered in by the demonetisation drive will pave way for an economic reboot and benefit all stakeholders.

 (Written by Rana Kapoor, MD & CEO, YES BANK and Chairman, YES Institute)