'RBI should stop looking at food inflation to decide interest rates

While retail inflation, measured by the movement in consumer price index, was at 5.08 per cent in June, food inflation was 9.36 per cent

The Reserve Bank should stop looking at food inflation in deciding interest rates and the government should explore giving coupons or direct cash transfer to poor to deal with higher food prices, the pre-Budget Economic Survey said on Monday.

While the inflation rate has moderated in recent months, the RBI has refrained from cutting benchmark interest rates — which decide the rate at which home, personal and corporate loans are given by banks — citing elevated food inflation.

India introduced the inflation-targeting framework in 2016 under which the Reserve Bank of India (RBI) is mandated to keep retail inflation at 4 per cent, with a margin of 2 per cent on either side.

The benchmark policy rates are decided bi-monthly by the RBI on the basis of movement in consumer price index, which includes food, fuel, manufactured goods and select services.