Food Inflation May Linger Despite Good Monsoon: India Ratings

Currently, marginal standing facility (MSF) rate is the operational overnight lending rate for the RBI; India Ratings expects easing of MSF rate and hardening of repo rate in second quarter review of the Monetary Policy on October 29.

Over the next few quarters, the agency expects the spread between MSF and repo rate to revert to the normal 100 basis points.

On the liquidity front, however, some liquidity infusion measures to correct the inverted yield curve are highly likely. Also, the introduction of innovative financial instruments over the next two quarters cannot be ruled out, the report said.

The rating agency said the food inflation, after falling to single digit in March 2013, has crept to double digits since June 2013.

The spurt in vegetable prices since June 2013 has been one of the key drivers of food inflation lately. Due to adverse supply conditions, onion witnessed 323 per cent inflation in September 2013.

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