Trading in seven commodities, including non-basmati paddy, wheat, chana, mustard seeds and derivatives, soya bean derivatives and crude palm oil, has been suspended. Futures trading of the seven items was banned for a year to control inflation, The Ministry of Finance has said.
Retail inflation in November increased to 4.91 percent, well above the RBI’s target range. The ban happens in the backdrop of rising inflation. In a notification, the Securities and Exchange Board of India (SEBI) said the suspension is effective from December 20, 2021, and applicable for a year. However, traders can only square off positions they currently hold.
A new contract cannot be launched until further orders are received. As to running contracts, no new positions can be taken. Only a re-alignment of positions can be allowed. These directions will be implemented with immediate effect.
There will be no new F&O contracts launched until further notice. Fresh positions (including intra-day) will not be allowed in F&O contracts for commodities listed. In a notification, SEBI said the above-mentioned directives are valid for one year.
With inflation hitting the roof, the ban could not have been more ill-timed. According to government figures, retail inflation in India rose to 4.91 percent in November, near the upper limit of the RBI target range, due to a sharp rise in the prices of fruits and vegetables.
The CPI-based inflation rate was 4.48 % in October and 6.93 % in November 2020. Data from the government showed that wholesale price-based inflation was 14.23 percent in November, its highest since April 2005, compared to 12.54 percent in October.
As a result of adverse base effects, the RBI expects the inflation print to rise over the remainder of the year. The central bank said that headline inflation is expected to peak in the fourth quarter of the current fiscal year and fall thereafter.
Starting from April this year, the WPI inflation rate has been in double digits for eight consecutive months. The data indicate that vegetable inflation hardened in November, along with egg and meat prices. Fuel and power prices increased by 39.81 percent. Compared to the previous month, the food index rose more than double to 6.70 percent.
