Food inflation surge muddies the policymaking waters

The recent surge in food price inflation means the RBI’s policy decision on Thursday 10^th August is now less of a formality than it had appeared. On balance, we still think that the MPC will keep the repo rate on hold at 6.50% rather than resume tightening. But with the El Niño threat also building, there is a growing risk that, even as other major EMs start their easing cycles over the coming months, the RBI delays the loosening that we currently expect to begin in early 2024.