RBI lowers inflation projection to 2.7-3.2 pc in H2 FY19, Highlights


Mumbai: The Reserve Bank Wednesday lowered retail inflation projection in the range of 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices.

The broad-based weakening of food prices imparts downward bias to the headline inflation trajectory going forward, the RBI said in its fifth bi-monthly monetary policy announced here.

Meanwhile, the central bank maintained status quo in monetary policy announcement, leaving the key interest rate unchanged at 6.5 per cent.

In its previous policy review in October, the apex bank had projected the retail inflation to be around 3.9-4.5 per cent in the October-March period of 2018-19.

In contrast to the food prices, there has been a broad-based increase in inflation in non-food groups. International crude oil prices have declined sharply since the last policy and the price of Indian crude basket collapsed to below USD 60 a barrel by end-November after touching USD 85 a barrel in early October.

“Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2 per cent in H2 FY2018-19 and 3.8-4.2 per cent in H1 FY2019-20, with risks tilted to the upside,” the RBI said.

It said the projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards.

Although recent food inflation prints have surprised on the downside and prices of petroleum products have softened considerably, it is important to monitor their evolution closely and allow heightened short-term uncertainties to be resolved by incoming data, it added.

Highlights of RBI monetary policy

– RBI keeps key lending rate (repo) unchanged at 6.5 pc
– Reverse repo rate stands at 6.25 pc, bank rate at 6.75 pc, CRR at 4 pc
– Projects retail inflation to be between 2.7-3.2 pc in October-March
– Retains GDP growth estimate at 7.4 pc for current fiscal
– Projects April-September growth for 2019-20 at 7.5 pc with downside risks
– Says time apposite to strengthen domestic macroeconomic fundamentals
– Fiscal discipline critical to create space and crowd-in private investment
– Lower rabi sowing may adversely affect agriculture, rural demand
– Financial market volatility, slowing global demand and rising trade tensions pose negative risk to exports
– Decline in crude oil prices is expected to boost growth prospects
– Credit offtake strengthened even as global financial conditions tightened
– Next meeting of the MPC on February 5-7.