The focus must be on preventing the impact of food inflation on the core business.

BOMBAY:While inflation is gradually declining, its pace is slow and uneven. There is still some time before inflation is sustainably aligned with the RBI’s 4% target.

The spillover of food inflation to core business must be avoided, Reserve Bank of India (RBI) Governor Shaktikanta Das said while voting for a status quo in policy rates and stance earlier this month, the minutes of the Monetary Policy Committee (MPC) meeting released on Thursday showed.

According to Mr. Das, food inflationary pressures show little sign of easing in the near term, while household inflation expectations are improving. “Monetary policy must remain vigilant about the potential spillover of food price pressures to the core components. This is essential for the final stage of disinflation and the anchoring of inflation expectations.”

“The best contribution that monetary policy can make to sustainable growth is to maintain price stability,” he added.

India’s inflation eased to a 59-month low of 3.5% in July from 5.1% in June, as a favourable base helped contain pressures, data showed on August 12. Consumer price index (CPI) inflation had reached 7.4% in July 2023.

On August 8, the Monetary Committee decided, by a majority of 4 out of 6 members, to leave interest rates unchanged in order to ensure that inflation gradually aligns with the target, while supporting economic growth.

The RBI hiked its policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5%.

Das countered the objection of two outside members, Jayanth Varma and Ashima Goyal, that high real interest rates are causing India to grow below its potential.

“At a time when sustainable disinflation towards the target is still underway, the question of the equilibrium natural rate of interest is premature,” Das said.

“In the real world, policymaking cannot be based on an abstract, theoretical construct that is unobservable and time-varying. Any justification for monetary easing based on high real rates can be misleading,” Das said.