MPC meet: RBI ups inflation forecast to 4.2-4.6% for H2, up from 4-4.5% earlier

The Reserve Bank today raised its inflation projection to 4.2-4.6 per cent for the second half of the current fiscal due to firming global oil prices and uncertainty on kharif farm output.

The Reserve Bank added that "the extent of the rise in inflation excluding food and fuel has been somewhat higher than expected."

According to the RBI Monetary Policy Committee (MPC) statement on the policy review, inflation is rising due to four reasons.

One, assessing the unlikely turnout of the kharif production versus what had been predicted in the August meeting. The policy statement said, "assessment of food prices going forward is largely favourable, though the first advance estimates of kharif production pose some uncertainty."

Two, price revisions have been taking place since the Goods and Services Tax (GST) is implemented.

Three, the Consumer Price Index (CPI) has been increasing, not considering food and fuel.

Four, global crude prices since July "have firmed up further in September," it stated.

The statement further accounted that these four causes can trigger an inflation rise. "Taking into account these factors, inflation is expected to rise from its current level and range between 4.2-4.6 percent in the second half of this year, including the house rent allowance by the Centre," it said.

Other causes of the rise in the inflation were stated in the August meeting. The policy document states that the earlier stated reasons continue to pose risks in the inflation rise.

Theoretically, a rise in inflation is triggered with repo rate cut. However, the rate cut is done for boosting growth.

The last change was made in August's third bimonthly meet where the repo rate was cut to 6 percent from 6.25 percent.

While keeping the key lending rate unchanged, it said: "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 consumer price index inflation of 4 per cent within a band of +/- 2 percent, while supporting growth."

India's retail inflation had swelled to 5-month high of 3.36 per cent in August on the back of costlier vegetables and fruits.