Food inflation shoots past 16%; interest rates could rise further

Food inflation touched a worrisome 16.44 per cent, rekindling the debate whether another round of interest hike was round the corner. HT reports.

Food inflation touched a worrisome 16.44 per cent, rekindling the debate whether another round of interest hike was round the corner as monetary authorities and the government’s macro economic managers grope for options to cool prices without upsetting growth in the broader economy.

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“Inflation has increased and particularly the number of food items, like jawar or bajra and pulses, fruits, vegetables, meat, eggs. All these food items prices have increased. This is an area of concern,” Finance Minister Pranab Mukherjee said.

Food inflation climbed 0.98 percentage points to 16.44 per cent during the week ended September 18, from 15.46 per cent in the previous week.

On Thursday, Punjab National Bank (PNB) increased its base rate by 0.5 percentage points to 8.5 per cent.

A higher base rate, which serves as the minimum floor rate, would increase interest rates for borrowers. “Such hike by PNB is aimed at better transmission of monetary policy rates into the lending rates,” PNB said in a statement.

Earlier this month, the Reserve Bank of India raised the repo rate, the rate at which banks borrow from RBI, by 0.25 percentage points 6 per cent. A higher repo rate raises banks’ borrowing costs, which in turn would raise interest rate on final home, auto and corporate loans.

Another public sector bank, Indian Bank, is likely to decide on an interest rate hike shortly.

“The RBI signalled that the cost of money is going up and this would be passed on to the customers,” T.M. Bhasin, chairman and managing director, Indian Bank told Hindustan Times.

IDBI Bank has also raised its base rate from 8 to 8.5 per cent.

The country’s largest lender — the State Bank of India — however, has retained its base rate at 7.5 per cent.