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SBI Research: Unseasonal Rainfall Affects Kharif Crops, Will Impact Food Inflation

According to SBI Research's most recent Ecowrap research, unseasonal rains in some parts of India in October may have a significant negative impact on food inflation in the months to come.

Shruti Kandwal
For the record, retail inflation in India increased to 7.41% in September from 7% in August
For the record, retail inflation in India increased to 7.41% in September from 7% in August

According to the report, these unusual rains are "significantly affecting Kharif crops." Most Kharif crops are sown in the monsoon months of June and July, and the harvest is in October and November.

"In states like Uttar Pradesh, the unusually high rainfall was more than 400% over average. Overall, October rains in India have been shockingly 54% over average,” as per the report.

In addition to grains, it believes that the costs of vegetables, milk, pulses, and edible oils, which make up more than a quarter of the CPI overall, are growing and will probably continue to do so in the months to come.

"In 2019, when India's October rainfall was 44% over average, the three-month average food Customer Price Index (CPI) was a whopping 10.9%, compared to 4.9% in the three months before. This suggests that unexpected rainfall may have a significant negative impact on food inflation in the coming months.”

For the record, retail inflation in India increased to 7.41% in September from 7% in August, staying above the Reserve Bank of India's statutory range of 2–6% for the third consecutive quarter.

According to the flexible inflation targeting framework, the RBI is considered to have failed in managing price rises if the CPI-based inflation is outside the 2–6% range for three consecutive quarters. In this case, the central bank would be required to justify its failure to control the price rise to the central government.

In light of this, the Reserve Bank of India has scheduled an unexpected extra monetary policy meeting for November 3rd.

The meeting has been called under the Section 45ZN of the Reserve Bank of India (RBI) Act 1934, the RBI stated in a statement on Thursday. The actions that should be taken if the central bank doesn't achieve its inflation-targeting mandate are covered by this section of the RBI Act.

Despite being planned a day after the US Fed's meeting on November 2, SBI Research's study on the out-of-turn MPC meeting stated that it is only a portion of the regulatory responsibility and does not expect any further agenda to be announced at the meeting.

SBI Research further stated, "Looking back at the previous unscheduled sessions of the MPC in March 2020 and May 2222, there were no press releases of such meetings earlier and the announcement of rate decision was unscheduled in true sense."

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