RBI cuts inflation forecast to 2.8% for Q419; 3.2-3.4% for H1FY20

Mumbai: The Reserve Bank Of India Thursday revised downwards the retail inflation forecast to 2.8 percent for the last quarter of the current fiscal on account of favourable factors including benign monsoon.

The RBI in its last bi-monthly monetary policy announcement for the current fiscal also lowered the retail inflation forecast for the first half of next fiscal beginning April, to 3.2-3.4 per.

For the third quarter of 2019-20, the inflation target is set at 3.9 percent.

"Several factors will shape the inflation path, going forward. First, food inflation has continued to surprise on the downside with continuing deflation across several items and a significant moderation in inflation in cereals. Several food groups are experiencing excess supply conditions domestically as well as internationally," RBI said.

RBI said the short-term outlook for food inflation appears particularly benign, despite adverse base effects.

The central bank Thursday cut the key repo rate -- at which it lends to banks -- by 0.25 percent to 6.25 percent.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of plus/minus 2 percent, while supporting growth," RBI said.

The moderation in the fuel group was larger than anticipated. Inflation in items of rural consumption such as firewood and chips, which had remained sticky and at elevated levels, has collapsed in recent months, it added.

"Taking into consideration these developments and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.8 percent in Q4:2018-19, 3.2-3.4 percent in H1:2019-20 and 3.9 percent in Q3:2019-20, with risks broadly balanced around the central trajectory," RBI said.