The Reserve Bank of India believes the spike in vegetable prices will stoke near-term headline inflation but, at this stage, it is more concerned about the excess liquidity sloshing in the system
Inflation took centerstage when the Reserve Bank’s rate-setting panel met earlier this month. The minutes of the meeting held from August 8-10 suggest a rate cut is unlikely this year. Jayanth Varma, Monetary Policy Committee member, said, “In June, I warned against declaring victory based on the inflation prints of just a couple of months, and expressed discomfort with the self-congratulatory tone of the MPC statement of that month about inflation having come inside the tolerance band. It is now clear that we would have a couple of months of inflation readings well above the tolerance band.”