Surging prices may keep RBI on extended pause, IMA says

Surging prices may keep RBI on extended pause, IMA says

India’s headline inflation may inch back above 6% in the next few months due to high vegetable and cereal prices, keeping the central bank on hold until early next year, according to IMA Asia economist Priyanka Kishore.

“The broadening food inflation is a concern,” Kishore said in an interview with Bloomberg Television’s Haslinda Amin and Rishaad Salamat. “The Reserve Bank of India will stay on a hawkish pause when it meets next.”

Weaker monsoon rains in parts of India and floods in other areas contributed to soaring prices of vegetables, cereals and pulses. Food, which makes up about half of the CPI basket, pushed inflation to a three-month high of 4.81% in June.

While there is a risk of inflation breaching the upper ceiling of RBI’s 2%-6% target, prices won’t remain in a sustained upward trajectory for long due to moderating fuel and core inflation, Kishore said.

The monetary authority is expected to hold rates for a third straight meeting when its meets Aug. 10, according to a Bloomberg survey.

To cushion the impact of rising food prices on the poor, the government may also offer stimulus for the rural economy before next year’s polls, Kishore said. “We are keeping a close watch on handouts and subsidies, but don’t expect the government to be very populist.”