RBI ups inflation forecast to 4.2-4.6%, keeps repo rate unchanged

The Dollar Business Bureau

The Reserve Bank of India (RBI) on Wednesday raised its retail inflation forecast to 4.2-4.6% for the second half of 2017-18 owing to the firming international prices of oil and uncertainty on the farm output of the kharif crop.

In August, in its last monetary policy review, the Central Bank had predicted the Consumer Price Index (CPI)-based retail inflation to be between 4-4.5% in the second half of current fiscal.

“The inflation path for the rest of 2017-18 is expected to be shaped by several factors," the bank said in its fourth bi-monthly monetary policy statement 2017-18.

As it sees inflation risks, the monetary policy committee (MPC) of RBI also kept the key lending rates – the repo rate - unchanged at 6%. The Bank also maintained neutral policy stance, citing that the short-term rate cuts could not be taken for granted.

“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for CPI inflation of 4% within a band of +/- 2%, while supporting growth,” it said. 

The country’s retail inflation had surged to five-month high of 3.36% in the month of August due to increased prices of fruits and vegetables.

According to the first advance estimates of the Government, there some uncertainties in the estimated kharif output and there are some price revisions pending after the rollout of the Good and Services Tax (GST), RBI said.

The CPI inflation, excluding fuel and food, has been increased and global crude oil prices which were on a rising trend since July have further firmed up in the month of September, it added.

“Taking into account these factors, inflation is expected to rise from its current level and range between 4.2-4.6% in the second half of this year, including the house rent allowance by the Centre,” RBI said in its policy statement.

Restating its August monetary policy, the central bank said that there are some factors that would continue to pose upside risks to the baseline inflation path. These factors include the farm loan waivers and implementation of salary and allowances by the states.

However, sufficient stocks of food and efficient supply management by the Government may keep the inflation in control than projected in the baseline, it said.