India’s central bank left interest rates unchanged Thursday but warned that higher food prices, caused in part by extreme weather, had impacted household budgets and halted a downward inflation trend.
The benchmark repurchase rate has been kept at 6.50 percent since the last hike by the Reserve Bank of India in February.
Consumer prices were “expected to surge during July (and) August led by vegetable prices”, governor Shaktikanta Das said in a webcast.
“While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed southwest monsoon so far,” he added.
Inflation edged up to 4.81 percent in June after falling to 4.31 percent in May. It peaked at 7.79 percent in April last year.
The bank’s decision was in line with analyst expectations.
Economists warn inflation in the short term could again breach the RBI’s upper tolerance band of 6.0 percent because of rising prices for crude oil and food, including tomatoes — a staple in Indian cuisine.
Tomato prices have soared in recent months after inclement weather and pest attacks in major production belts, the RBI noted in July.
Finance Minister Nirmala Sitharaman told parliament on Thursday that the government was taking “lots of steps…to contain high prices which are hitting common citizens”.
Sitharaman said the government was importing pulses and had removed import restrictions to source tomatoes from neighbouring Nepal to ease the domestic inflation pressure.
The government is already selling subsidised tomatoes across the country and the prices in wholesale markets “are falling and we expect this to help us”, she said.
“I want to highlight the fact that, on these essential commodities, we are taking enough steps — but more will also be taken, because we are conscious that people need essentials at an affordable price,” Sitharaman added.
India imports more than 80 percent of its crude oil, making the world’s most populous nation vulnerable to skyrocketing prices driven by Russia’s invasion of Ukraine.
The RBI kicked off its monetary tightening cycle in May 2022 when rates stood at 4.0 percent.
Das said the monetary policy committee remained “focused on withdrawal of accommodation”.
Headline inflation projections were revised upwards to 5.4 percent for the 2023-24 financial year, from the previous forecast of 5.1 percent.
The world’s fifth-largest economy grew 6.1 percent on-year in January-March, taking annual expansion to 7.2 percent, according to official data.
Real growth projections remained at 6.5 percent for 2023-2024, the governor added. — Agence France-Presse