Respite for RBI as India Vegetable Prices Come Off the Boil
(Bloomberg) -- Sizzling vegetable prices in India that have kept inflation high are beginning to cool, helping price-growth return toward the central bank’s target band and allowing policy makers to keep interest rates lower for longer.
The wholesale price for staples such as onions was 29 rupees (39 cents) a kilogram in New Delhi on Tuesday, down 29% from Nov. 1, while the price of tomatoes fell about 11%, according to the department of consumer affairs. Potatoes dropped 1.7% to 29.5 rupees during the same period, it said.
With fresh crops arriving at wholesale markets, including in New Delhi’s Azadpur Mandi, one of Asia’s biggest fruit and vegetable markets, the prices are expected to decline further in coming days, according to Rajinder Sharma, a trader whose family has been trading in potatoes and onions for more than a century.
While data Thursday showed retail inflation quickened to 7.6% in October, economists see declining food prices -- which along with beverages account for 54% of the consumer price basket -- helping ease price gains from November onward.
“The slowdown in food price gains is likely to become more evident starting in December on account of a high year-earlier base and an expected record harvest of the summer crop,” said Bloomberg Economics’ Abhishek Gupta.
The easing prices may not be enough yet to nudge the central bank’s Monetary Policy Committee to resume interest-rate cuts to support the economy, which the Reserve Bank of India’s “nowcasting” model estimates fell into a technical recession last quarter and is headed for a record annual contraction. But it is just what’s needed to move the inflation trajectory toward the RBI’s 2%-6% target band.
The central bank, which is scheduled to announce its next rate decision on Dec. 4, is forecasting inflation to ease to 5.4% in the current quarter, and slow to 4.5% in the three months to March. Economists expect policy makers to continue with their lower rates-for-longer stance adopted at their last meeting in October.
“We expect another pause from the RBI” next month, said Teresa John, an economist at Nirmal Bang Equities Pvt. in Mumbai. “The recent uptick in high frequency indicators and an improved GDP reading in the fiscal second-quarter will provide some comfort to the RBI.”
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