MUMBAI, Sept 20 (Reuters) - India's headline inflation is projected to average 4.5% in the second half of the fiscal year, supported by declining crude oil prices, according to the Reserve Bank of India's (RBI) monthly bulletin. However, fluctuations in food prices could present challenges.
The RBI noted that some recent vegetable price increases have started to reverse, suggesting that the persistent food inflation seen earlier in the fiscal year may soon subside. Retail inflation stood at 3.65% in August, slightly above the revised 3.60% recorded in July, primarily due to rising vegetable prices, which surged by 5.66% in August compared to 5.42% in the previous month.
The RBI aims for an inflation target of 4%, with a permissible range of two percentage points. The central bank warned that an unfavorable base effect could impact September's inflation figures.
Household consumption is expected to accelerate in the July-September period as inflation eases. The RBI has maintained its key interest rate unchanged for nine consecutive meetings, with the next monetary policy meeting scheduled for October 7-9.
Additionally, the RBI highlighted a narrowing gap between banks' credit and deposit growth, indicating reliance on certificates of deposit for funding. It also noted that non-banking financial companies (NBFCs) are increasingly seeking offshore bonds and facing asset quality issues, which may slow loan growth. The RBI emphasized the importance for NBFCs to manage evolving financial risks, including those related to cybersecurity and climate change.