India vulnerable to food-price shocks, warns RBI Governor - Hindustan Times
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India vulnerable to food-price shocks, warns RBI Governor

Nov 22, 2023 01:22 PM IST

India’s retail inflation eased to a three-month low of 5.02% in September on the back of softer vegetable prices, higher than the target of 4%

India is vulnerable to food-price shocks from extreme weather events and global factors despite a recent moderation in prices, the governor of the Reserve Bank of India (RBI), Shaktikanta Das, said on Wednesday.

This is the RBI governor’s second warning in a month about the risks from food inflation. (PTI Photo)
This is the RBI governor’s second warning in a month about the risks from food inflation. (PTI Photo)

“Momentous changes are taking place. Moderation in core inflation is noteworthy but the MPC (monetary policy committee) must be watchful, and the stance must be disinflationary,” Das said, speaking at a conference of bankers.

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Headline inflation “is still vulnerable to food price shocks from extreme weather events”, the central bank governor warned, stating that the RBI will continue to be vigilant against “sources” of inflation.

This is the RBI governor’s second warning in a month about the risks from food inflation.

In a speech delivered in Japan on November 8, Das had said the RBI saw risks from “recurring and overlapping” food-price shocks.

“In these circumstances, monetary policy remains watchful and actively disinflationary to progressively align inflation to the target, while supporting growth,” Das said.

Also Read: RBI forecasts retail inflation at 5.4% for 2023-24: Governor Das

India’s retail inflation eased to a three-month low of 5.02% in September on the back of softer vegetable prices, higher than the target of 4%.

In October, the consumer inflation rate drove down closer to target, at 4.87%, a four-month low. Food and beverage inflation was however unchanged at 6.24% in October, compared to the previous month.

The central bank, which has kept the key policy rate unchanged over the last four meetings, expects average inflation to stand at 5.4% in 2023-24, lower than 6.7% in the last fiscal year.

On Tuesday, a finance ministry report said it remained optimistic about growth but saw inflation as a “downside risk”, meaning prices could make a large fall and impact demand in Asia’s third-largest economy.

The downside risks to growth include inflation, which continues to keep the government and RBI on high alert, it said in its October Monthly Economic Review.

The ministry’s review said a “fuller transmission” of the central bank’s monetary policy actions to control inflation may temper down domestic demand. This refers to the fact that aggressive tightening of monetary policy to cool prices has the potential of suppessing demand for goods and services that is necessary for robust economic growth.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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