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RBI lowers inflation target for first half of FY19 to 4.7-5.1%

Author: PTI/Thursday, April 5, 2018/Categories: Regulatory

RBI lowers inflation target for first half of FY19 to 4.7-5.1%

Mumbai, April 5 - The Reserve Bank today lowered retail inflation target for the first half of current fiscal to 4.7-5.1% on sharp moderation in food price rise and likelihood of a normal monsoon.

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.

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%.

The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of 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, RBI said.

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

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 H1:2018-19 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 H1:2018-19 and 4.4% in H2, including the HRA impact for central government employees, with risks tilted to the upside,"it said.

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