The Reserve Bank Of India (RBI) is worried about inflation in protein items remaining elevated and has, in general, expressed a desire to put its interest rate cutting spree on hold till the time food price inflation is under check. The central bank kept its policy rate and the CRR unchanged today in its First Quarter Review of Monetary Policy for 2012-13. The repo rate stays at 8% and the CRR at 4.75% of net demand and time liabilities (NDTL) of scheduled banks. Reverse repo rate is at 7%. 

The RBI noted that there will be further pressure on food inflation because of the deficient and uneven monsoon, thus potentially aggravating inflation and inflation expectations. The bank stated that inflation in protein items is due to structural demand supply imbalances. 

According to the RBI, reflecting the setbacks to the global recovery, as also weather-related adversities in several parts of the world, the outlook for food and commodity prices, especially of crude oil, has turned uncertain. These developments have adverse implications for domestic growth and inflation. Notwithstanding some moderation, international crude prices remain elevated. On top of that, the rupee depreciation has added to import prices, putting upward pressure on domestic fuel prices.

Headline WPI inflation increased from 7.5% in April to 7.6% in May before moderating to 7.3% in June 2012. The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during the first quarter of this year driven by a spike in vegetable prices and sustained high inflation in protein items, noted the RBI.

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