Likely impact of food price shock on overall inflation prompted RBI to keep benchmark rates unchanged

Mumbai: The possibility of a second round impact of food price shocks on the overall inflation prompted Reserve Bank Governor Shaktikanta Das to opt for the status quo on benchmark interest rate at the bi-monthly monetary policy review earlier in the month.

The Reserve Bank at its last bi-monthly monetary policy committee (MPC) meeting on August 10 decided to keep the benchmark interest rate (repo rate) unchanged at 6.5 per cent citing inflationary concerns.

All six members including M D Patra, Shashanka Bhide, Ashima Goyal, Jayanth R Varma and Rajiv Ranjan voted for status quo on the policy rate.

"Our task (of containing inflation) is still not over. Given the likely short-term nature of the vegetable price shocks, monetary policy can look through the first-round impact of fleeting shocks on headline inflation.

"At the same time, we need to be ready to pre-empt any second-round impact of food price shocks on the broader inflationary pressures and risks to anchoring of inflation expectations," opined Das, as per the minutes of the meeting released by the RBI on Thursday.

According to RBI Deputy Governor Patra, ensuring the sustained easing of core inflation was crucial to the MPC’s objective of bringing inflation down to the target.

"This objective should not be undermined by supply shocks that show any signs of persisting and getting broader-based," he argued while voting for maintaining the status quo on the policy rate and for persevering with the withdrawal of monetary policy accommodation.