New Delhi [India]: Unseasonal rains in parts of India in October may have a large negative impact on food inflation in the coming months, said SBI Research in its latest Ecowrap report.
These unseasonal rains, the report said, are “affecting Kharif crops significantly”.
Kharif crops are mostly sown during monsoon -June and July, and the produce is harvested during October and November.
“In states like UP, the unseasonal rain was more than 400 per cent above the normal. Overall, India has received a staggering 54 per cent above normal rains in October so far,” it said.
It believes that along with grains, the prices of vegetables, milk, pulses and edible oils, which account for over a quarter of the overall Consumer Price Index, are rising and likely to remain high in coming months.
“During 2019, when India’s October rainfall was 44 per cent above normal, the 3 months average food CPI was whopping 10.9 per cent as against 4.9 per cent in the preceding 3 months. This indicates that unseasonal rains may have a large negative impact on food inflation in coming months.”
For the record, India’s retail inflation surged to 7.41 per cent in September from 7 per cent in the previous month, thereby remaining above the Reserve Bank of India’s mandated range of 2-6 per cent for the third straight quarter.
Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row, which would then require the central bank to explain to the central government the reasons for not being able to control the price rise.
Against that backdrop, the Reserve Bank of India has called for an additional and out-of-turn monetary policy meeting on November 3.
The meeting has been called under the provisions of Section 45ZN of the Reserve Bank of India (RBI) Act 1934, RBI said in a statement on Thursday.
This section of the RBI Act pertains to steps to be taken if the central bank fails to meet its inflation-targeting mandate.
On the out-of-turn MPC meeting, SBI Research report said it is only a part of the regulatory obligation and it does not foresee any other agenda to be announced at the meeting, even as it is scheduled a day after the US Fed’s meet on November 2.
“Furthermore, looking at the past unscheduled meetings of MPC in Mar’20 and May’22, there were no press release of such meetings earlier and the announcement of rate decision was unscheduled in true sense,” SBI Research added.