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The food inflation rate in India, which accounts for nearly half of the aggregate consumer price basket, increased from 2.96 percent in May to 4.49 percent in June 2023. Due to the country’s unstable weather conditions, the price of a number of goods has skyrocketed in recent months. For instance, tomato retail prices reached Rs 108.70 per kilogram at the end of July 2023, an increase of 372% during the current fiscal year. On 2 August 2023, tomato prices are approximately Rs 137.10 per kilogram.
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According to data available from CMIE Economic Outlook, onion and potato prices have increased by 19% and 24%, respectively, so far in FY24. In an effort to control inflation, the US Federal Reserve increased benchmark interest rates in July to a 22-year high of between 5.25 and 5.50 percent. It has also indicated at additional rate increases to combat inflation. On the other hand, it is anticipated that the Bank of England will raise its interest rates to 15-year highs on 3 August.
Expectations from the next Monetary Policy Meeting
Nuvama Institutional Equities anticipates that MPC will maintain the status quo on rates and its posture in its August 10 policy review.
“After the series of rate increases, MPC would like to wait and assess the cumulative impact of past tightening on demand. In light of the short-term upside risks to food inflation and the Fed’s and ECB’s continued hawkishness, the Federal Reserve and the European Central Bank may stay with the removal of accommodation’ in the short term, according to a report by Nuvama.
Nirmal Bang Equities stated, “We anticipate that the Monetary Policy Committee (MPC) will leave interest rates unchanged at its August meeting. CPI inflation in Q1FY24 has been in line with what the RBI predicted, but the recent rise in veggie prices may mean that the 5.1% CPI estimate for FY24 will have to be raised. In the meantime, high-frequency economic indicators have yet to indicate a significant slowdown.” The MPC of the RBI maintained the repo rate at 6.5 percent in June.
Aditya Damani, founder and chief executive officer of Credit Fair, stated “The RBI is expected to maintain its present stance of” withdrawal of accommodation “as CPI inflation has risen to a higher-than-anticipated level. It is probable that the repo rate will remain unchanged. With the Fed’s rate increase, the possibility of a rate reduction remains remote. In spite of this, MPC will maintain a close eye on improving consumer sentiment and capital expenditure momentum.”
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