Is Your Daal, Roti, Rice Getting Cheaper Post December? RBI Answers

The minutes from the December meeting of the Reserve Bank of India’s ( RBI ) Monetary Policy Committee (MPC) reveal that members expect food inflation to ease in the fourth quarter of the current financial year, driven by multiple factors.

RBI Maintains Key Interest Rate, Eases Cash Reserve Ratio
Earlier this month, the RBI decided to keep its key interest rate unchanged but cut the cash reserve ratio for banks for the first time in over four years. This move was aimed at easing monetary conditions amid a slowdown in economic growth. The decision reflects the RBI's open stance toward supporting growth, although it remains cautious until inflation moderates sustainably.

Food Inflation Likely to Moderate in Q4
Former RBI Governor Shaktikanta Das indicated that food inflation could reduce in Q4FY25 due to a combination of factors. These include a correction in vegetable prices, robust arrivals from the kharif harvest, a strong rabi crop, and sufficient cereal buffer stocks. "Moderation in food inflation is expected, which would help restore the balance between inflation and growth," Das said. He added that lower inflation would increase household disposable income, boosting consumption and investment.

Risk of Policy Error, Say External MPC Members
External MPC member Saugata Bhattacharya warned that both growth and inflation have worsened, raising the risk of a "policy error" compared to the October meeting. Despite the concerns, four out of six MPC members voted to keep the repo rate unchanged, while two external members, Nagesh Kumar and Ram Singh, called for a 25-basis-point rate cut.

Rate Cut Advocated to Revive Growth
Nagesh Kumar argued that a rate cut would help stimulate economic growth without worsening inflation, particularly as food inflation, driven by vegetable and edible oil prices, had already shown signs of easing in November. Ram Singh echoed this sentiment, stating that with food inflation’s impact on overall inflation weakening, high interest rates were imposing unnecessary growth costs.

Food Inflation Shows Signs of Cooling
In November, India’s retail inflation eased to 5.5%, down from a 14-month high of 6.2% in October. This reduction was mainly driven by cooling food prices, with food inflation dropping to 9% in November, compared to 10.9% in October. However, certain items such as potatoes (66.6%), carrots (33.4%), and garlic (over 80%) remained highly inflationary. Pulses also continued to show elevated inflation.