For this fiscal, it revised downwards its inflationary estimates to 2.8 percent in Q4
The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) on February 7 pegged H1 FY20 (April-September) inflation at 3.2-3.4 percent, assuming a normal monsoon. It also pegged inflation at 3.9 percent in Q3 FY20.
For this fiscal, it revised downwards its inflationary estimates to 2.8 percent in Q4.
The MPC had on December 5 pegged H1 FY20 inflation between 3.8 percent and 4.2 percent.
Addressing mediapersons, RBI Governor Shaktikanta Das said: “Headline inflation is expected to remain contained below or at its target of four percent. This has opened space for policy action. Investment activity is recovering supported mainly by public spending on infrastructure.”
In the policy document, the committee said the decision was in tandem with its objective of achieving its medium-term consumer inflation target of four percent, within a band of plus or minus two percent.
The committee stated that retail inflation declined from 3.4 percent in October to 2.2 percent in December 2018 -- the lowest print in the last 18 months.
Inflation in the fuel group fell from 8.5 percent in October to 4.5 percent in December, pulled down by a sharp decline in the prices of Liquefied Petroleum Gas (LPG), the committee said, adding that it reflects softening of international petroleum product prices.
The committee said that consumer inflation, excluding food and fuel, decelerated to 5.6 percent in December from 6.2 percent in October. It was pulled down primarily by moderation in petrol and diesel prices.
“Housing inflation continued to edge down as the impact of the House Rent Allowance (HRA) increase for central government employees dissipated,” the committee observed said in its policy document.
Despite some softening, the committee said inflation in prices of farm inputs and industrial raw materials remained elevated during the period.
In the previous monetary policy resolution on December 5, 2018, Consumer Price Index for 2018-19 was pegged between 2.7 percent and 3.2 percent in H2 FY19 and 3.8-4.2 percent for H1 FY20.
The actual inflation came in at 2.6 percent in Q2 2018-19, marginally lower than the projection.
“There have been downward revisions in inflation projections during the course of the year, reflecting mainly the unprecedented soft inflation recorded across food sub-groups,” the MPC said.
The committee cut repo rates by 25 basis points to 6.25 percent in its sixth bi-monthly monetary policy. Consequently, the reverse repo has come down to 6 percent.The six-member MPC, headed by RBI Governor Shaktikanta Das, also decided to change the monetary policy stance from calibrated tightening to neutral.