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RBI says pulses` shortage driving food prices up

Last Updated: Friday, October 1, 2010 - 23:46

Chennai: After tightening monetary policy to combat inflation, the RBI has expressed concern at rising prices of protein-based items, blaming them on shortage of pulses.

"The high level of food prices is indeed a matter of concern as the prices of protein-based items, which have a higher share in the consumption basket, are showing larger increases," RBI Executive Director Deepak Mohanty said in a speech delivered at the Bankers Club here recently.

Moreover, he said, there was continuing shortage of food items such as pulses and edible oils. "If the supply response doesn`t improve, there is a risk that food price inflation could acquire a structural character," he said.

For the week ended September 18, food inflation shot past 16 per cent to 16.44 per cent. This was the fifth consecutive week in which the rate of food prices has risen, after a spell of moderation in July and the first half of August.

Even during the week protein-based items like pulses, meat, eggs were costlier.

Mohanty noted that given the remarkable stability in the inflation rate since the mid-1990s, it was important to persevere with appropriate policy responses so that the high inflation seen in the recent months does not get entrenched.

"Even if the trigger for inflation is from supply side, its persistence necessitates monetary policy responses to bring the inflation rate back to its trend and anchor inflationary expectations," he said.

The moderation of inflation trend has had several beneficial effects in terms of lower nominal interest rate and high GDP growth rate.

Supply shocks when accompanied by demand pressures further amplify inflationary pressures. But the inflation rate has reverted to its trend following policy response and improved supply conditions, he said.

In the periods of high inflation, he said, monetary policy responded with a combination of available policy instruments through changes in policy interest rates, cash reserve ratio (CRR), statutory liquidity ratio (SLR), and in the earlier regime through increased in administered interest rates and credit control.


First Published: Friday, October 1, 2010 - 23:46

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