Consumer price inflation, though higher than the WPI, has also exhibited signs of moderation with CPI (new-series) inflation declining from 10.21 per cent during FY 2013-14 to about 9.49 per cent in 2013-14. Food inflation, however, remained stubbornly high during FY 2013-14, reaching a peak of 11.95 percent in third quarter.
High inflation, particularly food inflation, was the result of structural as well as seasonal factors. Contribution of the commodity sub-groups, 'fruits and vegetables', as well as 'egg, meat and fish' to the food inflation has been very high.
Inflation in Non Food Manufactured Product (WPI core) has remained benign throughout the year, with average inflation moderated to four year low of 2.9 per cent in 2013-14, which indicates that underlying pressures of broad-based inflation have somewhat eased.
IMF has projected that most global commodity prices are expected to remain flat during 2014-15, which augurs well for inflation in emerging market and developing countries including
However, there are risks to the outlook for inflation from a possible sub-normal monsoon during 2014-15 as predicted by the IMD on account of El-Nino effect, possible step up in the pass-through of international crude oil prices, and exchange rate volatility.
The course of gradual monetary easing that had started alongside some moderation of inflationary pressures at the beginning of the financial year 2013-14 was disrupted in
The RBI with a view to restoring stability to the foreign exchange market, hiked short term interest rate in July and compressed domestic money market liquidity.
Following the ebbing of volatility in the foreign exchange market, RBI initiated normalisation of the exceptional measures in a calibrated manner since its mid-quarter review (MQR) of
RBI in its Third Quarter Review of Monetary Policy on
Liquidity conditions remained tight during the first half (H1) of 2013-14, mainly reflecting policy intent to stabilise the exchange market pressure. The elevated central government cash balances with RBI (particularly in Q2 and Q4 of 2013-14), quarterly advance tax outflows, and festival-induced increase in currency in circulation also contributed towards the tight liquidity phases in 2013-14.
In order to prevent excessively worsening of liquidity conditions, which would have impacted financing conditions, RBI undertook measures to inject liquidity through OMO purchase auctions, overnight repo, MSF and variable rate term repos. (ANI)
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