Mumbai: Reserve Bank of India (RBI) deputy governor Subir Gokarn said on Tuesday the increase in food prices was a structural issue beyond tackling only with monetary policy tools.
With annual headline inflation in May already above 10%, pressure has been mounting on the RBI to raise rates ahead of its 27 July policy review, but a liquidity squeeze in the markets may prevent it from doing so, analysts and market players have said.
“Going forward there is a significant structural driver to food prices and the policy approach to that is not going to be confined to the working capacity of monetary policy,” Gokarn told a conference.
Gokarn, who is involved in setting monetary policy, did not elaborate.
“What he means to say is that you need supply side changes like increase in investments in agriculture, irrigation, better quality seeds etc to tackle this problem,” Sonal Verma, economist at Nomura in Mumbai said.
Economists expect the central bank to raise rates to tame inflation when it reviews monetary policy late next month.
India’s food price index rose 16.90% in the year to 12 June, higher than the previous week’s annual reading of 16.12%, government data released last Thursday showed.