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ELEVATED FOOD INFLATION: RBI TO HOLD RATES

Why in the news?

• The Monetary Policy Committee (MPC) is expected to keep policy rates unchanged during its meeting from August 6-8 due to elevated food inflation, according to Barclays India and Goldman Sachs Economics Research.
• Economists from both institutions highlighted the persistent upward pressure on food prices as a key reason for the MPC’s cautious approach.

Source: UGI

Economic Insights

• Barclays economists anticipate a 4-2 vote to maintain current policy settings, with no urgency to cut rates despite steady growth, potentially delaying rate cuts beyond December.
• They noted several factors for the MPC to consider, including halted disinflationary trends, fiscal consolidation commitments in the Union Budget, and indications of a potential U.S. Fed rate cut in September.

Future Inflation Risks

• Goldman Sachs economists pointed out that broad-based food inflation has kept headline inflation near 5% for the first half of 2024.
• They warned of upside risks to food inflation due to an uneven monsoon, even though a high base effect may bring headline inflation down towards 4% in Q3.