Any increase in global commodity prices is a matter of concern, says Monetary Policy Committee member Shashanka Bhide

Any change in international commodity prices is a matter of concern for India’s interest rate setters as a relatively benign global environment has provided breathing space to local policymakers amid stubborn domestic food price pressures, Monetary Policy Committee member Shashanka Bhide said. As his term at the MPC draws to a close, Bhide expressed hope that the new members of the panel would have the benefit of updated weights in the Consumer Price Index basket. Edited excerpts of an interview with Bhaskar Dutta:

As you have pointed out in the latest MPC minutes, the RBI’s surveys of urban households continue to show an uptick in inflation expectations. Are high food prices posing a risk of more generalised inflation, going ahead?

Persistent high food inflation poses a risk. We have benefited from relatively favourable international commodity price conditions. Any change in the energy and other input price scenarios would be a concern.In the latest MPC minutes, you have flagged that private investment indicators continue to show a mixed trend. When could we see a sustained pick-up in private investment?
Unfortunately, there is not enough information on investment spending in the public domain. What we have from the National Accounts quarterly data is only the aggregate-level capital formation. The information available from the corporate sector refers to spending on fixed assets. The pattern of private investment till 2022-23 shows that the growth of investment spending had declined. Data on infrastructure, construction and import of capital goods in 2023-24 reflect a momentum similar to 2022-23. Going forward, acceleration in consumption demand and exports would provide the impetus to investments.

How would monetary policy seek to achieve a balance between containing inflation and driving growth-supportive consumption? There are arguments in some quarters that real interest rates are currently too high.
One argument, of course, is that low inflation should raise consumption demand and spur growth. Or at least help sustain higher demand. Priority to inflation objective, therefore, is important when growth momentum is strong. Higher real interest rates would not raise investment demand. However, the recent rise in the real interest rates is due to the decline in the inflation rate.

Your term at the MPC witnessed an unprecedented combination of challenges – the pandemic, an aggressive US tightening cycle and wars in multiple countries. As your term draws to a close, how would you describe the experience as one of the makers of India’s interest rate policy?
The term of our MPC has indeed coincided with quite challenging economic conditions. I am sure the economic conditions will always be challenging. I suppose decisions are relatively easy to make when faced with a crisis situation and we were left with low interest rates even when inflation was high and kept interest rates high when inflation began to moderate. It was my privilege to be a member of this important policy institution. I believe that the framework of MPC is a very valuable one that lends greater transparency and discussion from different perspectives to arrive at a decision. The objectives are quite clear, and the instrument is one. We benefited from significant policy coordination that made our decisions more efficient. I hope the new panel will have the benefit of CPI with updated weights.