Headline inflation is likely to face upside risks over the rest of the financial year ending March 2019 and need close monitoring, India’s central bank said in its annual report released on Wednesday.
Upside risks can emerge from several sources, the Reserve Bank of India said, “warranting continuous vigil and a readiness to head off those pressures from getting generalized.”
Inflation averaged 4.8 percent in the April-June quarter.
Rising global commodity prices, especially of crude oil, and recent global financial market developments are firming up input cost pressures, the bank said.
Further, the staggered impact of pay revisions for government employees could also pose an upside risk through second-round effects, the RBI noted.
“Much will depend on how food prices play out and how effective are the supply management strategies,” the bank added.
The RBI expects the acceleration, which began in the second half of the 2018 financial year, to consolidate and built upon.
“Keeping in view the evolving economic conditions, real GDP growth for 2018- 19 is expected to increase to 7.4 percent from 6.7 percent in the previous year, with risks evenly balanced,” the bank said.