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Food inflation at 20% but RBI may not hike rates

Food inflation at 20% but RBI may not hike rates
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First Published: Fri, Dec 18 2009. 12 19 AM IST

Wait and watch: Indranil Pan of Kotak Mahindra Bank.
Wait and watch: Indranil Pan of Kotak Mahindra Bank.
Updated: Fri, Dec 18 2009. 12 19 AM IST
Mumbai: Food inflation shows no sign of abating. Food prices for the week ended 5 December are up 19.95% since last year, versus 19.05% week-on-week (w-o-w). Primary articles are costlier by 14.98% versus 13.9% w-o-w. However, Indranil Pan, chief economist, Kotak Mahindra Bank Ltd, says in an interview the Reserve Bank of India (RBI) is likely to wait a while before resorting to rate increases. Edited excerpts:
Is this the first nasty sign? Is this enough to push RBI over the brink, or do you think it will wait for more readings of food inflation before it takes any action?
Wait and watch: Indranil Pan of Kotak Mahindra Bank.
I think they should actually wait for more numbers on the food inflation side because most of the action for the management of the supply side of food has just about started now. So you can’t really expect the first week of December to actually show a significant softening in the food inflation.
The second issue is that very specific items within food are actually moving up.
For example, I really do not know what the movement this week was, but last week there was a significant rise in onions and potatoes, which in terms of a monetary policy can actually do nothing in trying to contain in terms of the price rise.
But yes, the pressure is definitely there on the monetary policy to act at the moment.
When most of Asia went into a crisis, they felt the pain, they came out of it learning some lessons. We seem to have gone through nothing. I mean, commodity prices are back to normal, real estate prices are back to normal, and a common man just can’t buy anything. Shouldn’t RBI be thinking of the pressures this kind of monetary inflation is causing out there to common people and perhaps do something about it, which is put the brakes on this right away?
I think we are talking different languages here, in the sense that if you are referring to the asset market, yes, there could be some pressures over there and, therefore, in terms of handling.
The asset market prices need a totally different policy atmosphere than what we are talking about in terms of onion and potato prices, and maybe even sugar prices, which is still looking like more of a supply-side phenomenon. That is the issue that we really need to look at.
cnbctv18@livemint.com
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First Published: Fri, Dec 18 2009. 12 19 AM IST
More Topics: CNBC-TV18 | Inflation | RBI | Food | Economy |