Food Inflation Should Not Play Role In RBI's Interest Rate Decisions: Goyal

Urging the Reserve Bank of India (RBI) to cut the interest rates and give an impetus to growth, the Union Commerce and Industry Minister Piyush Goyal has shared his opinion that food price inflation should not play a role in the apex bank’s interest rate decisions.

Speaking at an industry event, the Minister termed the link between food inflation and interest rates as an ‘absolutely flawed theory.’ He stated, “I think it is an absolutely flawed theory that food inflation should be considered while deciding on the interest rate structure. It (food inflation) has nothing whatsoever to do with managing inflation. That is a demand-supply situation.”

The Union Minister also suggested that the policymakers and regulators should engage in discussion involving all stakeholders, including economists to determine if food inflation should be part of decision-making process for inflation targets an interest rates. However, Goyal clarified that his comments were his personal views and do not reflect the Centre’s stance.

The Apex bank’s Governor Shaktikanta Das, who spoke shortly after Goyal, did not directly react to the Minister’s comments but mentioned the risks of inflation re-emerging. In his address, the Governor mentioned, “Soft landing has been ensured but the risks of inflation coming back and growth slowing down do remain.”

India's retail inflation was at 6.21 per cent in October, breaching the Reserve Bank of India's (RBI) 6 per cent upper tolerance level. According to data released by the Ministry of Statistics and Programme Implementation (MoSPI), food inflation was at 10.87 per cent. Notably, vegetable Inflation was at 42.18 per cent.

High food inflation in October is mainly due to an increase in the inflation of vegetables, fruits, and oils and fats. August retail inflation, at 3.65 per cent, was the second lowest in the last five years, and since then it has been rising.