RBI Governor Warns Fuel Price Hikes May Fuel Inflation

"Retail fuel prices have been raised cumulatively by 7.4 per cent for petrol and 8.4 per cent for diesel. The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second order effects, would get reflected in CPI inflation in the coming months," Sanjay Malhotra governor RBI said.

Speaking to reporters at the monetary policy press conference, Malhotra flagged a likely deficient south-west monsoon and potential El Nino conditions as major domestic risks. A weaker monsoon could affect agricultural production, rural demand and food inflation in the coming months, he said.

Malhotra cautioned that the food inflation outlook remains uncertain despite headline consumer inflation staying below the central bank’s target. The RBI projected inflation at 5.1 per cent for the rest of the financial year.

Another risk he said was the uncertainty on how long the supply disruptions would continue. On a question on polymer currency notes, Malhotra said that it is under consideration.

“The proposal (on Polymer notes) is under consideration and is currently at a preliminary stage,” RBI Governor said.

Malhotra said that overall the economy is well-balanced and the country will manage the West Asia conflict positively, noting that the crisis presents an opportunity for the country to manage its shocks well. He said that the country’s fiscal state is fine and the West Asia conflict has impacted all the economies globally. He added that the country’s banks are well sufficed and the country’s corporates have a good balance, noting that the country’s forex reserves are well positioned.