Debate over excluding food inflation from monetary policy reaches MPC

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Subscribe to enjoy similar stories. Mumbai: Two newly appointed Monetary Policy Committee (MPC) members have rekindled the discussion started by the Economic Survey on excluding food inflation from the monetary policy framework. Of the three external members of the rate-setting panel of the Reserve Bank of India, Nagesh Kumar and Ram Singh have argued in the MPC minutes released last week that a high repo rate cannot bring down food prices.

The latest GDP growth rate of 5.4% and a spike in food inflation to 6.2% in October seem to have unsettled the MPC’s external members, who expressed views that sharply deviate from the August meeting's minutes. “During the last ten years, changes in repo rates seem to have made little difference to vegetable price volatility. Specifically, the elevated interest rates during the last ten quarters had no significant effect on price volatility, especially of TOP (tomato, onion and potato) vegetables, the primary source of volatility in headline inflation," noted Singh in the minutes.

Singh also suggested that the MPC should aim to bring CPI inflation within a range rather than aiming to bring it to a point target of 4%. Under the current framework, the RBI has been mandated by the government to maintain retail inflation at 4% with a margin of 2% on either side. "The costs of trying to shoot at the point target in every state of the uncertainty ridden future can be unjustifiably high," Singh added.