RBI Governor Advocates Vigilance Amid Debate on Food Inflation and Monetary Policy

Governor Shaktikanta Das emphasized the importance of considering food inflation in the Reserve Bank of India's monetary policy due to its significant impact on consumer prices. Despite suggestions to exclude it, the RBI is conducting thorough analyses and remains in close contact with the government to address supply-side issues. Neutral interest rates and potential recession risks were also discussed.

Governor Shaktikanta Das of the Reserve Bank of India asserted Thursday that excluding food inflation in setting benchmark interest rates is not an option while formulating monetary policy.

Das, underscoring the substantial 46% weightage of food in consumer price inflation, stated that adjustments based on up-to-date analyses by the National Statistical Office are necessary.

In his policy review statement, Das emphasized that the Monetary Policy Committee (MPC) must stay watchful to avoid spillovers from persistent food inflation, despite the Chief Economic Advisor's suggestions to exclude it from rate-setting considerations.

Das further mentioned that the current CPI basket, based on 2011-12 data, was due for review but faced delays due to the Covid pandemic.

In response to potential impacts from floods and heavy rainfall, Das noted regular coordination with the government to manage inflation driven by supply-side pressures.

Addressing discussions on reducing interest rates sparked by the recent neutral rate disclosure, Deputy Governor Patra affirmed the policy rate's correctness, aligning with potential economic growth.

Das also commented on U.S. unemployment data, concluding that it's premature to discuss a recession, reiterating the RBI's data-driven approach.

The RBI officials declined to comment on new draft guidelines proposing increased bank liquidity coverage, ensuring preparedness for any financial crisis.