Softening vegetable prices will push retail inflation back to the central bank’s comfortable band of 2 per cent-6 per cent, according to a member of India’s Monetary Policy Committee (MPC), who said the rate of inflation after the recent spike has eased. The trajectory will become clear. ,

Ashima Goyal, an external member of the Reserve Bank of India’s (RBI) committee, said the rise in prices of commodities like tomatoes has been “unprecedented”, but usually a shock (price hike) is followed by a seasonal softening in vegetables. Interview with Reuters late Thursday.

“I don’t think inflation will move out of our comfort zone once vegetable prices come down,” he said.

Food inflation in India rose to a 3-year high of 11.5 per cent in July, led by vegetables. This pushed retail inflation above the RBI’s comfort zone to 7.44 per cent.

The data comes after the six-member MPC kept policy rates steady at its meeting earlier this month. On Wednesday, RBI Governor Shaktikanta Das said that he expects vegetable prices to start coming down by September.

The prices of cereals, pulses and spices have also gone up, prompting the government to ramp up supply-side measures.

“Inflation in foodgrains has persisted since the Ukraine war, but it has been managed,” Goyal said. “We really don’t expect this to persist and the government has a lot of supply-side arsenal through stocks, trade etc.”

Goyal expects the government, which has a fiscal deficit target of 5.8 per cent of GDP in 2023-24, to remain fiscally prudent despite adopting these measures.

He said steps such as reducing fuel prices, which would impact oil marketing companies more than direct government finances, could help improve domestic inflation expectations.

Earlier this month, the RBI tightened liquidity by imposing an additional cash reserve requirement on banks, pushing short-term interest rates above the repo rate of 6.5 per cent.

In the minutes published on Thursday, RBI deputy Michael Patra said that tightening liquidity should be the central bank’s priority as it poses a direct threat to its resolve to bring India’s inflation within target.

“Under this inflation targeting framework, liquidity cannot be tightened to the extent that short-term rates rise above the repo rate mandated by the MPC,” Goyal said.

“If you want to raise rates, raise the repo rate,” he said.

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