Economists have advised the Reserve Bank of India (RBI) to maintain its current approach of gradually reducing accommodation and staying cautious about inflation, in light of a recent significant increase in food prices. This advice was given during a meeting held last week. The RBI’s upcoming monetary policy meeting is scheduled for 8-10 August.
During the meeting, the RBI sought economists’ opinions on the recent surge in commodity prices and the Consumer Price Index (CPI)-based inflation, as well as their recommendations for the RBI’s course of action. The majority of economists pointed out that the near-term CPI is likely to be higher due to vegetable prices, but they expect the inflation in the fourth quarter to align with the RBI’s forecast. The general consensus was that the RBI should maintain its current stance and adopt a “hawkish” hold for now.
During the meeting, RBI officials listened to the observations of the participants without expressing their own views on the monetary policy path.
In its previous monetary policy statement on 8 June, the RBI’s Monetary Policy Committee decided to keep interest rates unchanged and continue with its gradual reduction of accommodation. While the committee stressed the importance of achieving the four per cent inflation target, it slightly lowered its inflation forecast for the current financial year to 5.1 per cent.
However, since the last meeting, the perception of inflation has changed significantly. Some economists believed that vegetable prices might decrease in a month or so, but the larger concern was about spillovers, with rice and some cereals experiencing recent price increases, according to another source.
Due to the sharp rise in food prices over the past month, several economists anticipate that the July CPI inflation could be around 6.00-6.50 per cent, compared to 4.81 per cent in June. It’s important to note that the RBI’s tolerance band for CPI inflation is 2-6 per cent, and the Monetary Policy Committee projects inflation to be at 5.2 per cent in the ongoing quarter.