• UGI USER
  • Aug 03, 2024
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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.
What is the Monetary Policy Committee (MPC)?

  • Origin: Established under Section 45ZB of the amended RBI Act, 1934 (2016), the central government forms a six-member MPC.
  • Objective: The MPC’s role is to set the Policy Rate to meet the inflation target, and its decisions are binding on the Bank.

Composition:

  • RBI Governor (Chairperson).
  • Deputy Governor responsible for monetary policy.
  • An RBI officer nominated by the Central Board.
  • Three members appointed by the central government, selected for their expertise in economics, banking, finance, or monetary policy.

Associated Article:

https://universalinstitutions.com/rbi-and-monetary-policy-in-india/