The Reserve Bank of India on Tuesday released a report which suggests that prices of Food such as cereals, pulses, and edible oils rose or remained stable in May. The report further indicates that inflation may rise further.
Key Highlights of the Report:
Price of LPG cylinder has risen by Rs 50 per cylinder, while Petrol-Diesel Prices have remained (high but) stable
A surge in Wheat price has caused prices of cereals to rise
Prices of key vegetables have sharply risen
The report, however, observes that the Monetary Policy Committee’s (MPC) unexpected move to raise interest rates bodes well for the MPC’s credibility.
According to the RBI’s monthly State of the Economy report, which was released on Tuesday and cited high-frequency food price data from the Ministry of Consumer Affairs for the period between May 1-12, the increase in cereal prices was primarily due to a surge in wheat prices.
About Repo Rate Hike:
Even before the April inflation figures were released, the MPC held an unscheduled meeting in the first week of the month and decided to raise the repo rate by 40 basis points to 4.4% to combat inflation, which has now hovered above the upper limit of the RBI’s inflation target of 4%, plus or minus 2%, for four consecutive months.
According to market experts, the RBI cut the repo rate by 115 bps in 2020 to ease the burden of the Covid-19 pandemic but now it is looking to hike the rates to keep inflation in check.