As food prices turn negative, PMEAC says times now favour rate cuts

NEW DELHI: With food inflation turning negative in December, the Prime Minister's Economic advisory panel today made a case for reduction of interest rates by the Reserve Bank in its monetary policy review later in the month.

"The environment appears to be in favour of the Reserve Bank reversing its monetary policy stance," Prime Minister's Economic Advisory Council Chairman C Rangarajan said while commenting on food inflation which has turned negative to (-) 3.36 per cent for the week ended December 24.

The Reserve Bank of India ( RBI), which has raised interest rates for 13 times since March 2010 to contain inflation, has already paused rate hike in its December mid-quarter policy review. The central bank is scheduled to announce the next policy review on January 24.

This is the first time in almost six years, for which data with base year 2004-05 is available, food inflation has shown a decline on an annual basis.

Terming the decline in food inflation as expected, he said the rate of price rise may remain negative till March.

"This (decline) was expected as the seasonal trend has caused vegetable prices to come down in the recent months. I see food inflation negative in January and negative or close to zero by March," the PMEAC chief said.

He said the decline in food inflation will also bring down headline inflation to below 7 per cent by March.

"We had predicted headline inflation to be 7 per cent by March. However, it will be below 7 per cent," Rangarajan said.