RBI governor predicts veggie prices to cool down from Sept

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Vegetable prices have started declining and from September the prices will cool appreciably, Reserve bank of India governor Shaktikanta Das said on Wednesday while delivering the key note address at the Lalit Doshi Memorial Lecture. The RBI governor also said that the outlook for cereal prices has brightened following administrative interventions to increase supply. On Wednesday, onion traders in Nashik, the principal onion growing belt in the country decided to call off their stir against the 40% export duty that the government slapped on August 19 to redirect onions from export markets to the domestic scenario to increase supply and cool down prices. The decision to reopen onion markets and resume auctions was taken in a meeting of the representative bodies of traders and exporters and farmers with Union minister Dr Bharati Pawar. “About the 40 per cent export duty, we will request the Union government to rethink and take a positive decision on the issue,” the minister said after the meeting. The onion markets and auctions at Agriculture Produce Market Committees were closed for three days on the trot to protest against the export curbs by the government.

On the other hand, the RBI chief remarked that even as core inflation remained high, it has been easing steadily over the past few months which in an indication that the monetary policy transmission is happening.

“Looking ahead, the spike in vegetable prices in July is starting to see a correction, led by tomato prices. New arrivals of tomatoes in mandis are already softening prices, coupled with proactive supply management in the case of onions. We expect to see an appreciable slowdown in vegetable inflation from September,” said Das. Retail inflation has been a concern for the policymakers after it soared to a 15-month high of 7.44% in July from 4.87% a month ago and 4.25% in May. Rising vegetable prices that was calculated to contribute 200 basis points to the surge played the main villain in the rise of the CPI-based inflation.

Incidentally, RBI projects that retail CPI inflation will slow down to 5.7% in the third quarter after touching a high of 6.2% in the second quarter.

RBI has projected FY24 inflation at 5.4%.

Das reiterated that monetary policy will overlook the first-round effects of these price shocks which has led to sharp spikes in headline inflation. The RBI governor, like the Union finance minister earlier, emphasised that his institution will be ever vigilant to ensure that second order effects in the form of generalisation and persistence of inflation are not allowed to take hold.

“The frequent incidences of recurring food price shocks pose a risk to anchoring of inflation expectations, which has been underway since September 2022. We will remain watchful of this also. The role of continued and timely supply side interventions assumes criticality in limiting the severity and duration of such shocks,” added Das.

On Wednesday, he also reiterated that their target is to bring down retail inflation down to 4%.