The Reserve Bank of India, in the sixth and last bi-monthly monetary policy meeting, kept the repo rate unchanged with neutral stance, however, raised the inflation forecast for the the fourth quarter of the current fiscal to 5.1% and for the first six months of the next fiscal year in the range of 5.1% and 5.6% on the concerns of rising crude oil price and house rent allowance impact.
“Domestic pump prices of petrol and diesel rose sharply in January, reflecting lagged pass-through of the past increases in international crude oil prices. Considering these factors, inflation is now estimated at 5.1 per cent in Q4, including the HRA impact,” the RBI said.
Rallying crude oil price, which is now hovering over $66 per barrel is one of the major inflation-related concerns. According to the Economic Survey Report 2018, every $10 per barrel hike in crude oil prices push inflation up by 1.7 percentage points. Amid the fiscal slippage, experts say government vowing to increase farmers’ minimum support price 1.5 times will further put pressure on the tight fiscal situation. There is a possibility of a $9-10 billion increase in current account deficit on higher global crude oil price.
The RBI had raised concerns over house rent allowances in December as well, saying that it was expected to peak in the month of December. “The staggering impact of HRA increases by various state governments may push up housing inflation further in 2018, with attendant second-order effects,” the RBI had predicted.
“Since the MPC’s last meeting in December 2017, global economic activity has gained further pace with growth impulses becoming more synchronised across regions. Among advanced economies (AEs),” RBI said in its press statement acknowledging that financial markets have become volatile in recent days due to uncertainty US Fed monetary policy.
