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Crude oil, poor monsoon could raise inflation – RBI

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The Reserve Bank of India has flagged two key areas of concerns as far as monetary policy is concerned – the threat of poor monsoon, and the return of high inflation due to possible increase in oil prices.

“While headline inflation has moderated, price pressures arising from a possible sub-normal monsoon and uncertainties about crude oil prices remain significant risks… Consumer price index based inflation is expected to be pulled down by base effects till August and thereafter, to increase to about 6% by January 2016,” the RBI said in its Financial Stability Report released today.

On upside risks to inflation, it said: “.. the El-Nino phenomenon and a projected sub-normal monsoon may have a potential inflationary impact. Similarly, the trend in global crude oil prices amidst considerable volatility and exchange rate movement could increase upside risks to infation if capital flows moderate.”

The RBI also expressed its concern over economic growth, choosing to be skeptical about how much of the recent reported rise in GDP growth can be taken at face value.

“Notwithstanding this improvement (in GDP numbers), higher growth seems at odds with low credit growth, rleatively lower flow of resources to the commercial sector, low capacity utilization, subdued growth in thee index of industrial production and muted corporate performance, among others.”

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