Will tomato prices push RBI to hike rates? Check old footprints of onion & potato

economictimes.indiatimes.com:

RBI Governor Shaktikanta Das, vegetable inflation has made the 4% CPI inflation target look more elusive. To find out whether tomato-nomics will force RBI to hike rates, let us look at the past 12 instances of TOP (tomato, onion, potato) price hikes since 2010. While tomato prices increase almost every June-July, potato prices increase after every two years and onion prices rise after every 2.5 years.

Given the seasonal nature of price shocks and the fact that these spikes fizzle out within a few months, the RBI has mostly refrained from making its decision while looking at the vegetable basket. In the last 12 such instances of trouble in TOP basket, RBI has kept the policy rate unchanged six times, according to a report by Bank of America (BofA). The central bank reduced the repo rate twice by 25 basis points each (including the 2019 onion price peak) and even reduced the policy rate on two such occasions.

In 2010, when tomato prices rose from June to August, the repo rate was raised from 5.5% to 5.75%. Again in September and November 2010, repo rate was raised twice but WPI non-food inflation, which had shot above 10%, was the main concern. In 2013, when onion prices were on a high from July to December, RBI repo rate rose 25 bps to 7.75%.

CPI, at that time, was high in both food and non-food subgroups. Three instances of TOP price hike cycles seen in between 2014 and 2017 had RBI keeping its repo rate unchanged. In FY 2019-20, when onion prices were on a high in between October and February, repo rate was reduced by 25 bps in October and kept stable in the next two meetings.