Inflation is slowing down due to expensive food prices, according to the head of the RBI.

During the Monetary Policy Committee (MPC) meeting earlier this month, Reserve Bank of India Governor Shaktikanta Das stated that stubborn food prices were the main reason for the slow decline in overall retail inflation. This led to a unanimous decision to maintain the current interest rates, with four of the six members voting in favor of keeping the benchmark interest rate at 6.5%.

However, two external members, Ashima Goyal and Jayanth R Varma, argued for a 25 basis points reduction in the policy repo rate to boost economic growth. They were concerned about the slow pace of disinflation and the persisting food inflation, which has been a major obstacle in achieving the desired inflation target.

Governor Das further emphasized that the last mile of disinflation has been gradual and protracted, with food inflation being the main culprit. He also expressed hope that the normal monsoon season would help ease price pressures in key food items.

Despite the slow pace of disinflation, the MPC members agreed that maintaining price stability was crucial for long-term sustained growth. They also acknowledged the weak consumption and stressed the need to increase income and employment for a sustainable boost in the economy.

External member Varma, who had previously raised concerns about the growth sacrifice due to restrictive monetary policy, expressed his belief that maintaining such policies for too long would result in a further growth sacrifice in the future. He also pointed out that professional forecasters surveyed by the RBI were projecting lower growth rates for the next two years, which could have a significant impact on the economy.

In conclusion, while the MPC decided to maintain the current interest rates, the external members advocated for a rate cut to stimulate economic growth. The committee acknowledged the challenges posed by stubborn food prices and the importance of maintaining price stability for long-term growth. The minutes of the meeting also highlighted the need to address underlying price pressures and increase income and employment for a sustainable boost in the economy.

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