India’s forex kitty at $684.8 bn, gold reserves go up
However, gold reserves, which form part of the foreign exchange kitty, increased by $1.08 billion to $68.53 billion during the week, according to the central bank.
The Reserve bank of India (RBI), in an article in August Bulletin, said the monetary policy needs to take a cautious approach if food inflation persists, as such shocks may not be transitory and could spill over into generalised inflation.
The Reserve bank of India (RBI), in an article in August Bulletin, said the monetary policy needs to take a cautious approach if food inflation persists, as such shocks may not be transitory and could spill over into generalised inflation.
A report titled ‘Are Food Prices Spilling Over’, authored by Deputy Governor MD Patra and others, said, “Monetary policy is the only active disinflationary agent in the economy. Going forward, therefore, if food price pressures persist and continue to spill over, a cautious monetary policy approach is warranted.”
It said an analysis revealed that in a staggering 57% of months between June 2020 and June 2024, food inflation was at or above 6%, with around 6 out of 12 food sub-groups experiencing 6% and above inflation for 50% or more of these months.
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“This attests to the broad-based nature of high food inflation persistence. Barring sugar and confectionery, all other food sub-groups experienced high food inflation in more than one-third of the months considered.”
Perishable food inflation has been volatile in the 2020s, with an increase in the episodes of price spikes driven by supply shocks. Since November 2023, perishables inflation has remained persistently elevated, averaging 7% and moving in a range of 6.5 to 7.8%.
Furthermore, double-digit food inflation was observed for an extended period of time in key food sub-groups.
The report highlighted that in the last few months, food price pressures have become unrelentingly persistent even as core inflation has fallen to historic lows, steered by disinflationary monetary policy.
As a result, there is a danger that the beneficial effects of lowering core inflation could be frittered away.
The article said core inflation had been declining since 2022- 23, mainly driven by monetary policy actions and stance and the waning of cost-push shocks. Food price shocks have been imposing upside pressures on core inflation throughout these years, but this has been offset by disinflationary monetary policy.
Monetary policy is the only active disinflationary agent in the economy. Going forward, therefore, if food price pressures persist and continue to spill over, a cautious monetary policy approach is warranted, it maintained.
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