India’s central bank holds rates as food prices soar

MUMBAI, INDIA — India’s central bank again left interest rates unchanged Thursday but warned that higher food prices, caused in part by extreme weather, had impacted household budgets and halted a downward inflation trend.

The benchmark repurchase rate has remained at 6.50 per cent since the last hike by the Reserve Bank of India in February.

Consumer prices were “expected to surge during July (and) August led by vegetable prices”, bank governor Shaktikanta Das said in a webcast.

“While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed southwest monsoon so far,” he added.

Inflation edged up to 4.81 per cent in June after falling to 4.31 per cent in May, down from a peak of 7.79 per cent in April 2022.

The bank’s decision was in line with analyst expectations.

Economists warn that inflation in the short term could again breach the RBI’s upper tolerance band of 6.0 per cent because of rising prices for crude oil and food, including tomatoes — a staple in Indian cuisine.

Tomato prices have soared in recent months after inclement weather and pest attacks in major production belts, the RBI noted in its July bulletin.

India imports more than 80 per cent of its crude oil, making the world’s most populous nation vulnerable to skyrocketing prices driven by Russia’s invasion of Ukraine.

The RBI kicked off its monetary tightening cycle in May 2022 when rates stood at 4.0 percent.

Das said the monetary policy committee remained “focused on the withdrawal of accommodation”.

“Bringing headline inflation within the tolerance band is not enough. We need to remain firmly focused on aligning inflation to the target of 4.0 per cent,” he added.

Headline inflation projections were revised upwards to 5.4 per cent in the 2023-24 financial year from the previous forecast of 5.1 per cent.

The world’s fifth-largest economy grew by 6.1 per cent on-year in the March quarter to take annual expansion to 7.2 per cent, according to official data.

Real growth projections remained at 6.5 per cent for 2023-2024, the governor added.

The South Asian nation is among the world’s fastest-expanding major economies.

— AFP