INDIA’S central bank again left interest rates unchanged today but warned that higher food prices, caused in part by extreme weather, had impacted household budgets and halted a downward inflation trend.

The benchmark repurchase rate has remained at 6.5% since the last hike by the Reserve Bank of India (RBI) in February.

Consumer prices were “expected to surge during July (and) August led by vegetable prices”, bank governor Shaktikanta Das said in a webcast.

“While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed southwest monsoon so far.”

Inflation edged up to 4.81% in June after falling to 4.31% in May, down from a peak of 7.79% in April last year.

The bank’s decision was in line with analyst expectations.

Economists warn that inflation in the short term could again breach the RBI’s upper tolerance band of 6% because of rising prices for crude oil and food, including tomatoes – a staple in Indian cuisine.

Tomato prices have soared in recent months after inclement weather and pest attacks in major production belts, the RBI said in its July bulletin.

India imports more than 80% of its crude oil, making the world’s most populous nation vulnerable to skyrocketing prices driven by Russia’s invasion of Ukraine.

RBI kicked off its monetary tightening cycle in May last year when rates stood at 4%.

Das said the monetary policy committee remained “focused on withdrawal of accommodation”.

“Bringing headline inflation within the tolerance band is not enough. We need to remain firmly focused on aligning inflation to the target of 4%,” he said.

Headline inflation projections were revised upwards to 5.4% in the 2023-2024 financial year from the previous forecast of 5.1%.

The world’s fifth-largest economy grew by 6.1% on-year in the March quarter to take annual expansion to 7.2%, according to official data.

Real growth projections remained at 6.5% for 2023-2024, the governor said.

The South Asian nation is among the world’s fastest-expanding major economies. – AFP, August 10, 2023.