Vegetable prices have surged past Rs 100 per kilogram in markets across major Indian cities, as food inflation rises due to an extended monsoon that affected crops. The food inflation had already shot up from 0.68 per cent in 2021, to 8.38 per cent by summer 2022, before the rains struck. The result is that inflation has remained way above RBI’s comfort range of 6 per cent for three straight quarters, and now the central bank has some explaining to do.
Government sees silver lining, yet seeks explanations
After inflation hit 7.41 per cent in September, the RBI’s monetary policy committee (MPC) is meeting to piece together a report about its failure to curb retail inflation. The central bank is responsible for keeping inflation in the 2 per cent to 6 per cent range, but it hasn’t been able to do much. On the other hand the Finance Ministry has spotted a silver lining, describing inflation management in India as better than other countries across the world.
Does the public get to know?
Although the Reserve Bank won’t be revealing the report on its slip ups to the people, the government has the right to make it public. The meeting to discuss the failure to lower inflation despite raising interest rates by 190 points this year, will take place on November 3. This will also be the first meeting of the MPC for this reason, since it was put together in 2016 to set interest rates.
Has aggressive stance paid off?
Earlier this month, two panelists of the six member committee had recommended going slow on repo rate hikes or pausing them, to prioritise growth amidst a looming global recession. The suggestions had come after RBI’s aggressive interest rate hike, mirroring the US Federal Reserve’s moves, to bring inflation under control by limiting cashflow.
Although the rate hikes made loans costlier and FDs more lucrative, they didn’t bring down retail inflation, which is driven by food prices being pushed upwards due to erratic climate.