RBI expects retail inflation to fall to 2-3.5 per cent in the first half of current fiscal and move up to 4.5 per cent in the second half saying that rush for farm loan waivers may have inflationary spillovers.
The abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections, it said.
In its second Bi-monthly Monetary Policy Statement of 2017-18, the Reserve Bank said the prices of pulses are clearly reeling under the impact of a supply glut caused by record output and imports.
"Policy interventions, including access to open trade, may be envisaged to arrest the slump in prices," it said.
The easing of inflation excluding food and fuel may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand, it said.