Raghuram Rajan, Governor, RBI, in his first bi-monthly monetary policy stated that there are upside risks. He stated that unseasonal rains could result in deviations in vegetable and fruit prices from their regular seasonal patterns.
Retail inflation dropped to 5.17% in March as against 5.37% in February and food inflation, or CFPI, came in lower at 6.14% as against 6.88% in Feb as well. There is nothing to cheer about as yet.
A more deeper analysis of the data gives a picture that is more up to date with the reality. Reserve Bank of India (RBI) focuses on retail inflation and aims to keep it under 6% by January next year. As the number is comfortably under that target and even dropped for March, the industry naturally is asking for more rate cuts to boost investment and growth.
Industry body CII said, ""This should persuade the RBI to resume its rate-easing cycle to support growth without being too concerned about the impact on inflation."
Retail inflation and Consumer Food Price Index might have come down when compared against the month of February but an year-on-year comparison sounds alarm bells.
Raghuram Rajan, Governor, RBI, in his first bi-monthly monetary policy stated that there are upside risks. He stated that unseasonal rains could result in deviations in vegetable and fruit prices from their regular seasonal patterns.
The sensitive food prices vegetables, pulses and products and spices shot up by 11.26%, 11.48% and 9.03%, respectively when compared against March 2014.
Fruits were costlier by 7.41% in the same period.
Prices of milk and milk products increased by 8.35% as against corresponding period of last year.
The cause of worry is the unseasonal rains that lashed parts of India in March. The effect of the crop damage and its subsequent price rise hasn't kicked in yet.
"Notwithstanding, the bad weather conditions in March, the fall in CPI inflation, that too led by deceleration in the prices of fruits and vegetables, is inspiring and indicative of improved supply side conditions in the country," PHD Chamber of Commerce President Alok Shriram said.
The RBI has lowered interest rates by a total of 0.50% since January 2015 outside the policy cycle this year.
However, in its latest policy review on April 7, Rajan kept repo rate unchanged, awaiting clarity on impact of unseasonal rains on food inflation even as he wanted banks to pass on benefits of the previous two rate cuts.
Rajan further stated that possible intensification of el nino which could lead to less than normal monsoon.
"However, at this juncture, these upside risks appear to be offset by downsides originating from global deflationary/disinflationary tendencies, the still soft outlook on global commodity prices; and slack in the domestic economy," he had further stated.
(With agencies)
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