RBI pins hope on normal monsoon;expects inflation at 4% by Aug

The Reserve Bank today said it is assessing the impact of unseasonal rains and hailstorms on food prices even though it hoped that normal monsoon in the coming months would bring down retail inflation to about 4 per cent by August.

Consumer Price Index-based inflation is projected at its current levels in the first quarter of 2015-16, moderating thereafter to around 4 per cent by August but firming up to reach 5.8 per cent by the end of the year, RBI said in its first bi-monthly monetary policy statement.

"There are upside risks to the central projection emanating from possible intensification of El-Nino conditions leading to a less than normal monsoon; large deviations in vegetable and fruit prices from their regular seasonal patterns, given unseasonal rains; larger-than-anticipated administered price revisions...,"it said.

Besides, geo-political developments may lead to hardening of global commodity prices and spill-over from external developments through exchange rate and asset price channels could have a bearing on inflation, it added.

On the adverse impact of unseasonal rains and hailstorms in March, RBI said it is still unfolding.

Initial estimates indicate that as much as 17 per cent of the sown area under the rabi crop may have been affected though the precise extent of the damage remains to be determined, it said.

In 2015 so far, RBI said the inflation path has evolved along the projected roadmap after a sizable undershoot of the January 2015 target.

The Reserve Bank will stay focused on ensuring that the economy dis-inflates gradually and durably, with CPI inflation targeted at 6 per cent by January 2016 and at 4 per cent by the end of 2017-18, it said.

"Although the target for end 2017-18 and thereafter is defined in terms of a tolerance band of +/- 2 per cent around the mid-point, it will be RBI's endeavour to keep inflation at or close to this mid-point, with the extended period provided for achieving the mid-point mitigating potentially adverse effects on the economy," it added.