Policy rates have limited impact on food prices: MPC external members

Das, who chaired his last MPC meeting, expressed optimism about economic growth

- MANOJIT SAHA

Taming food prices, which have been driving the headline inflation rate, through interest rates has a limited impact, said two external members of the Reserve Bank of India's (RBI's) Monetary Policy Committee in the December policy review.

According to the minutes of the meeting, both these members, Nagesh Kumar and Ram Singh, had voted for a policy repo rate cut of 25 basis points. The Monetary Policy Committee decided to keep the rate unchanged at 6.50 per cent with a 4-2 majority in favour of the decision while all members supported the motion to change the stance of the policy to "neutral" from "withdrawal of accommodation".

"The extent of the slowdown [in growth] is serious enough to warrant policy attention," said Kumar, referring to 5.4 per cent growth in gross domestic product in July-September, much below the RBI's forecast of 7 per cent.

Observing that the growth slowdown largely reflected the weakness of the industrial sector, Kumar said this had resulted in employment sentiment deteriorating in Q2.

Kumar, who had voted for a rate cut in the October policy too, said the inflation spike was largely due to food prices, which have a high weighting in the index.