MPC's dilemma: Inflation down but pulses could pose a problem

Shift in crop sowing pattern likely to reduce production and raise prices

Headline inflation dipped to 1.5 per cent in June, well below the lower end of the Reserve Bank of India (RBI)’s inflation target of 4 plus-minus 2 per cent. Industrial activity continues to remain sluggish. Yet is there a case for maintaining the status quo on interest rates, when the RBI’s monetary policy panel (MPC) announces its policy stance on Wednesday?

In recent months, retail inflation has consistently undershot the RBI’s forecasts. Much of this decline in inflation was driven by falling food prices, particularly those of pulses and vegetables. The former fell by 21.9 per cent in