New Delhi: RBI is expected to be on an ‘extended pause’ as inflation is likely to remain close to 4.5 per cent during 2018-19, says a report.
According to Kotak Economic Research, inflation through the next financial year, commencing April 1, is likely to remain close to 4.5 per cent, higher than its stated target of 4 per cent and this will warrant ‘cautiousness from RBI’.
“We expect the RBI's Monetary Policy Committee (MPC) to maintain status quo as it awaits clarity on monsoons, sustainability of high crude oil prices post the winter squeeze, and global financial conditions,” the report said.
For Reserve Bank, the Consumer Price Index (CPI)-based retail inflation continues to remain the prime focus, besides monsoon, high crude oil prices and global financial conditions.
“Amid still-subdued capacity utilisation levels and being mindful of any nascent growth recovery, the RBI would possibly remain on an extended pause,” the report said.
However, any sharp deviation from the RBI's estimated inflation trajectory on account of non-transitory causes will prompt the RBI to revisit its neutral stance and move policy rate higher, it added.
As per the Central Statistics Office (CSO) data, retail inflation fell to a four-month low of 4.44 per cent in February on cheaper food articles and lower cost for fuel. Following the easing of retail inflation in February, there is industry clamour for a rate cut by RBI next month to maintain growth momentum. The central bank's next monetary policy review is scheduled for April 5. It had kept the policy rate unchanged in its February meeting on fears of inflation.
