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Monetary policy: RBI lowers inflation target for first half of FY19

“With the sharp moderation in food prices in February-March, the inflation trajectory in H1 FY 2018-19 is expected to be lower than the projection in the February statement, despite a likely reversal in food prices in H1,” the April monetary policy statement said.

business Updated: Apr 05, 2018 16:02 IST
Press Trust of India, Mumbai
Monetary policy,RBI,RBI inflation target
RBI said it expects that overall food inflation should remain under check on the assumption of a normal monsoon and effective supply management by the government.(AFP Photo)

The Reserve Bank in its monetary policy meeting on Thursday lowered its retail inflation target for the first half of the current fiscal to 4.7-5.1%, on sharp moderation in food price rise and the likelihood of a normal monsoon.

In its bi-monthly policy review in February, RBI had projected inflation in the 5.1-5.6% range in the first half of 2018-19.

The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of the monetary policy, in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth, the central bank said.

Besides, it has also lowered the inflation outlook for the last quarter of the previous fiscal ending on March 31, to 4.5% from 5.1%.

For the second half 2018-19, the inflation outlook is projected at 4.4%, down from previous projection of 4.5-4.6%.

“Actual inflation outcomes in January-February averaged 4.8%, largely reflecting the sharp decline in vegetable prices and significant moderation in fuel group inflation. The available information suggests that vegetable prices continued to moderate in March as well,” RBI said.

Several factors are likely to influence the inflation outlook, it said.

“With the sharp moderation in food prices in February-March, the inflation trajectory in H1 FY 2018-19 is expected to be lower than the projection in the February statement, despite a likely reversal in food prices in H1,” it added.

RBI said it expects that overall food inflation should remain under check on the assumption of a normal monsoon and effective supply management by the government.

International crude oil prices have become volatile in the recent period, with a distinct hardening bias in the second half of March, even as the increase in shale production was more than expected. This has adversely impacted the outlook for crude oil prices.

“On current assessment, Indian domestic demand is expected to strengthen during the course of the year...Taking these factors into consideration, projected CPI inflation for 2018-19 is revised to 4.7-5.1% in H1 FY 2018-19 and 4.4% in H2, including the HRA impact for central government employees, with risks tilted to the upside,” it said.

In its first policy review for the current fiscal, RBI has kept the key repo rate -- at which it lends to banks --unchanged at 6%.

First Published: Apr 05, 2018 16:02 IST