RBI Governor Shaktikanta Das said that El Nino is a challenge for food inflation
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Das said, “Inflation had increased significantly after February-March last year due to the Ukraine war. Due to this, the prices of commodities increased at the international level. Many food items such as wheat and edible oil come from Ukraine and the Central Asia region. The disruption in the supply chain from that region pushed up prices significantly. But soon after that we took several steps. We started increasing the interest rate from May last year. Several steps were taken to improve the supply system at the government level as well. Inflation has come down due to these measures and now it is below five per cent. It is noteworthy that the inflation rate based on the Consumer Price Index stood at a 25-month low of 4.25 percent in the month of May. It had gone up to 7.8 percent in April last year.
when will you get relief
To bring inflation under control, the Reserve Bank has increased the repo rate by 2.5 percent from May last year to February this year. When asked by when people would get relief from inflation, Das said, “Inflation has come down. It was 7.8 percent in April last year and it has now come down to 4.25 percent. We are keeping a close watch on this. We will take whatever step is necessary. In this financial year, we estimate that it will be 5.1 percent on an average and our efforts will continue to bring it to the level of four percent in the next year (2024-25). The RBI is entrusted with the responsibility of keeping the retail inflation rate at 4 per cent with a margin of error of 2 per cent.
The central bank primarily takes into account retail inflation while deciding on the policy rate-repo. When asked about inflation at the level of food items, he said, ‘The prices of food items have also come down. FCI has been releasing wheat and rice in the open market. In many cases the level of customs duty has been adjusted. At the monetary policy level, we have taken a calculated stance on the policy rate. In the last data that came, there has been a lot of improvement in food inflation. Food inflation stood at 2.91 per cent in May as against 3.84 per cent in April. However, inflation in cereals and pulses shot up to 12.65 per cent and 6.56 per cent, respectively.
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afraid of el nino
Das, who was recently awarded the Governor of the Year award, also said that crude oil is not a problem at the level of inflation. At present, the price of crude oil has softened internationally and it is currently around 75-76 dollars. On the question of challenges in the way of bringing inflation under control, he said, ‘There are two-three challenges. The first challenge is uncertainty at the international level. The uncertainties that have arisen due to the war (Russia-Ukraine) are still there, its impact will be known only in the future. Second, though a normal monsoon is expected, there are apprehensions about El Nino. It remains to be seen how severe the El Nino is. Other challenges are mainly weather related, which affects the prices of vegetables. These are all uncertainties that we have to deal with.
When asked about the relief to borrowers from high interest rate, the RBI governor said, “Interest rate and inflation go hand in hand. That is why if inflation is brought under control at a sustainable level and it comes around 4 per cent, then the interest rate can also come down. That is why we should analyze both together. Asked if interest rates will come down once inflation comes down, Das said, “I will not say anything about that now.” When the inflation is low, then we will think about it.
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