Repo Rate Amid suggestions to keep food prices out of the calculation while determining inflation, former Reserve Bank of India (RBI) Governor Raghuram Rajan has expressed his disagreement with not including food prices in the core inflation, saying that this will make people feel bad towards the central bank. There will be less trust. Rajan said that inflation should target a group which includes consumer goods. This affects consumers’ perceptions and expectations about inflation. He said, even when I became the Governor, we were targeting PPI (Producer Price Index). But this has nothing to do with the challenges faced by an average consumer. Rajan said, in such a situation when RBI says that inflation is low then look at PPI.
Suggestion to keep food inflation out
If consumers are facing some different challenges, they may not actually believe that inflation has come down. He was responding to a question on suggestions made in the Economic Survey 2023-24 about keeping food inflation out of the calculation while setting standard interest rates. He said, if you leave out some of the most important components of inflation and say inflation is under control, but food prices or prices of any other segment not kept in the inflation ‘basket’ are skyrocketing, then you know that. People will not have much confidence in the Reserve Bank. In the Economic Survey 2023-24, Chief Economic Advisor V Ananth Nageswaran had advocated keeping food inflation out of the policy rate setting process. He had said that monetary policy has no impact on the prices of food items because prices are determined by supply side pressures.
SEBI should answer point wise
Rajan said on this argument, you cannot influence food prices in the short term but if food prices remain high for a long time then it means that there are some restrictions on food production relative to demand. This means you have to reduce inflation in other areas to balance it. On the recent allegations against market regulator SEBI chief Madhabi Puri Buch, the former RBI governor said that one has to be cautious about this because anyone can make allegations at any time. But if the allegations have been adequately investigated, it is important for the regulator to be clear of all allegations, he said. This means he has to address the allegations point by point. Describing the allegations against the SEBI chief as a matter of conflict of interest, Rajan said that the more detailed the investigation into the allegations has been, the more detailed the point-wise answer should be.
