RBI can’t ignore food inflation while setting rates, will wait for NSO to review CPI weightage: Das

Mumbai, Aug 8 (PTI) Amid suggestions for excluding food inflation while setting benchmark interest rates, Governor Shaktikanta Das on Thursday said the Reserve Bank cannot ignore it while formulating the monetary policy.

He said that the weightage of food in the overall consumer price inflation, which stands at 46 per cent currently, was done in 2011-12, and needs to be revisited, and added that analysis work is going on by the National Statistical Office.

“The MPC (monetary policy committee) may look through high food inflation if it is transitory; but in an environment of persisting high food inflation, as we are experiencing now, the MPC cannot afford to do so,” Das said in his policy review statement.

“It (MPC) has to remain vigilant to prevent spillovers or second round effects from persistent food inflation and preserve the gains made so far,” he added.

Chief Economic Advisory V Anantha Nageswaran had pitched for excluding food inflation from the rate setting calls, saying that the monetary policy has no bearing on the prices of food items, which are dictated by supply side pressures.

Das declined to elaborate further on the remarks made in the written statement earlier in the day, but said that the weightage of food in CPI could change based on the findings of the NSO survey.

The current CPI basket is based on 2011-12 data and the review could not be undertaken because of the Covid pandemic, he said.

Das said the RBI is in regular touch with the government on the supply side response to inflation, and also discusses flood and heavy rainfall.

He said while high rainfall in a district of Kerala and parts of Himachal Pradesh will lead to some impact on prices, overall the monsoon is 7 per cent higher than the long period average and will have a positive impact on the food inflation.

Amid a debate on whether RBI should cut interest rates, sparked by a disclosure of the neutral rate being at 1.4-1.9 per cent, Patra said that if one factors in the neutral rate, one will see that the current level of the policy rate is “exactly right”.

“Neutral rate is actually reflecting the better performance of the economy. The major driver of the neutral rate is potential growth,” the Deputy Governor in-charge of the monetary policy department said.

Meanwhile, when asked about the release of unemployment data in the US which led to widespread concerns, Das said it is too premature to talk about a recession in the US and added that the RBI will act as per all the incoming data from both domestic and international sources.

The RBI top brass led by Das also declined to comment on the recently released draft guidelines on liquidity coverage ratio, which propose to increase the amount of money which banks set aside to take care of any crisis.