RBI cuts inflation forecast to 2.9-3% for H1 FY20

Mumbai | The Reserve Bank on Wednesday cut the retail inflation forecast to 2.9-3 per cent for the first half of current fiscal, mainly due to lower food and fuel prices as well as expectation of a normal rainy season.

The RBI has reduced the key policy rate by 25 basis points to 6 per cent.

The inflation path during 2019-20 is likely to be shaped by several factors. First, low food inflation during January-February will have a bearing on the near-term inflation outlook. Second, the fall in the fuel group inflation witnessed at the time of the February policy has become accentuated, RBI said in its first bi-monthly monetary policy for 2019-20.

“Taking into consideration these factors and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in H1:2019-20 and 3.5-3.8 per cent in H2:2019-20, with risks broadly balanced,” the RBI said.

In its previous policy outcome in February, the RBI had projected retail inflation between 3.2-3.4 per cent for the first half of 2019-20.

Among others, the apex bank said Consumer Price Index-based inflation, excluding food and fuel, in February was lower than expected, which has imparted some downward bias to headline inflation.

Meanwhile, international crude oil prices have increased by around 10 per cent since the last policy announcement.

Following are the highlights of the first bi-monthly monetary policy announced by the RBI:

* Short-term lending rate (repo) reduced by 25 bps to 6 pc;

* This is second back-to-back rate cut;

* RBI maintains Neutral stance on the monetary policy;

* Four out of six MPC members voted in favour of rate cut;

* GDP growth projection lowered to 7.2 pc for 2019-20;

* RBI revises downward retail inflation estimate to 2.4 pc in Q4 FY19.

* MPC notes output gap remains negative and domestic economy facing headwinds;

* Next monetary policy statement on June 6.