Food supply complicates monetary policy review: CEA

Constraints in food supply are making it difficult for RBI to strike a balance between promoting growth and controlling inflationary expectations, government's Chief Economic Adviser Arvind Virmani said today.
 
RBI will be reviewing its monetary policy tomorrow amid concerns of rising prices, especially primary food articles, but all the same the central bank is expected to foster policies that aid economic growth.
 
"In India's case there is a new concern, that is agriculture, monsoon related supply effects. Domestic supply side issue (of food products) has to be accounted for. That makes this judgement (of striking a balance) a little more complicated," Virmani told PTI.
 
Monetary policies worldwide have to deal with issues like controlling inflation, promoting growth and financial stability.
 
However, financial stability is not such a big concern any longer, Virmani said.
 
In case of inflation, the CEA said, the monetary policy has to deal with two issues ¿ excess demand and inflationary expectations -- the perception about price rise in the future.
 
However, at present the issue of excess demand does not exist in India, and hence monetary policy has to deal with inflationary expectations, he added.
 
Inflationary expectations depend, to some extent, on the judgement of markets. If there are no inflationary expectations, then RBI can focus on promoting growth, Virmani said.