Monetary policy must be disinflationary to quell these price pressures: RBI bulletin
RBI) may need to continue with disinflationary monetary policy and it has to remain cautious as the pressure stemming from persistently high food prices is spilling over into other components of inflation and shaping household perceptions on prices, a central bank article said.
«Food price shocks may lie outside the realm of monetary policy, but when they result in food inflation acquiring persistence and spilling over into other components of inflation and into consumer behaviour, the monetary policy must be disinflationary to quell these price pressures in order to achieve its mandate of price stability and thereby retain credibility,» deputy governor Michael Debabrata Patra said in the article, co-authored by Joice John and Asish Thomas George.
They said that the country is facing the danger of losing the beneficial effects of low core inflation if food prices cannot be anchored. Core inflation has been restrained through monetary policy tightening.
«Should this disinflationary force (to core inflation) recede, upward pressures on core and headline inflation could get magnified and may run out of control, especially with aggregate demand picking up alongside cost-push risks looming in the wake of geo-political tensions,» the authors said.
In the last monetary policy announcement earlier in the month, the central bank kept the repo rate unchanged but continued with its «withdrawal of accommodation' stance as it felt the reduction in inflation may not be durable unless food prices ease.
Food inflation carries
