RBI MPC members expect food inflation to ease in Q4, show minutes

Reserve Bank of India

The members of the monetary policy committee (MPC) of the Reserve Bank of India (RBI) expect food inflation to reduce in the fourth quarter of the current financial year, show December policy minutes.

“Moderation in food inflation can be expected in Q4FY25 due to correction in vegetables prices, robust kharif harvest arrivals, a likely good rabi crop and adequate cereal buffer stocks,” former Reserve Bank of India Governor Shaktikanta Das said in the minutes of his last monetary policy committee (MPC) meeting.

"The policy priority at this critical juncture has to be on restoring the inflation growth balance," said Das.

Lower inflation will enhance households' disposable income and increase their purchasing power, and this approach would support consumption and investment demand, Das added.

The RBI kept its key interest rate unchanged earlier in the month, but cut banks' cash reserve ratio for the first time in over four years, effectively easing monetary conditions as economic growth slowed.

"The monetary policy stance is open to support growth, but it must await the ebbing of inflation on a durable basis or else the uneven progress made so far in disinflation will get dissipated," deputy governor Michael Patra wrote.

External member Saugata Bhattacharya said both growth and inflation have worsened, and the risk of making a "policy error" was higher now compared to the October policy.

Four of the six MPC members voted to keep the repo rate on hold but two external members - Nagesh Kumar and Ram Singh - had voted for a 25 basis points reduction.

Nagesh Kumar said that keeping in mind the easing of vegetables and edible oil in November, food inflation should be easing further in the coming months.

"I believe that a rate cut would help in reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices," said Kumar, who voted for a rate cut at a second straight meeting.

"When the correlation between food prices and core inflation is weak at best and the share of items contributing to inflation has come down, keeping interest rates elevated to keep overall inflation closer to the target imposes growth costs that are disproportionate to the gains on the prices front," Singh said.

In November, India’s retail inflation eased to 5.5 percent in November from a 14-month high of 6.2 percent in the previous month, as food prices cooled off.

Food inflation had eased to 9 percent for the month compared with 10.9 percent in October.

Core inflation is likely to remain broadly contained as the disinflationary effect of past monetary policy actions continues to play out. On balance, headline inflation is expected to ease to 4.5 per
cent in Q4:2023-24 and further to 4.0 per cent by Q2:2025-26, Shaktikanta Das, former RBI governor said.

Even though food inflation eased from a 15-month high of 10.9 percent in October to 9 percent in November, some of the categories remained in double digits.

Potato inflation was a high 66.6 percent in November compared with 64.9 percent in the previous month, and carrot was 33.4 percent compared with 22.8 percent.

Garlic inflation was still high over 80 percent, while some of the pulses were also trending over 20 percent.

In the core category, personal care and effects inflation remained in double digits owing to higher gold and silver prices.