Why is Food Inflation important in RBI rate cut?
As per report the global rating agency S&P Global has updated its economic forecast for Asia-Pacific economies after the results of the US presidential election on november 25. According to the estimate of the rating agency, India's GDP growth forecast for the coming financial year i.e. FY 2025-26 has been reduced to 6.7 percent and for FY 2026-27 to 6.8 percent. However, S&P Global has maintained its forecast of 6.8 percent GDP growth in FY 2024-25.
Meanwhile the rating agency said in a report, "In India, we are seeing GDP growth declining to 6.8 percent this financial year." The agency estimates that India's GDP will grow at the rate of 7 percent in FY 2027-28. S&P's latest report says that the ever-increasing food inflation is hampering the rate cut by the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW">reserve bank of india (RBI). The rating agency expects the central bank to cut its rate only once in this financial year 2023-24 i.e. before march 31. The report also said, "A reduction in agricultural supply leads to consumer inflation, which has increased food prices and all this is dependent on climate change, so it is difficult to predict anything right now as to when food inflation will stop. At present, food inflation has become even more volatile recently."
Moreover S&P has described food inflation as important in RBI rate cut as it contributes about 46 percent to inflation, due to which it cannot be ignored in rate cut. According to the agency, the central bank will probably remain alert by not reducing its policy rate too fast. The report said, "China's measures should boost growth. We expect US trade tariffs for exports to have a significant impact on China. Overall, the agency expects GDP growth of 4.1 percent in 2025 and 3.8 percent in 2026. However, this is 0.2 percentage points (ppt) and 0.7 ppt less than the september forecast.