The Reserve Bank today said inflation,which has shown signs of moderation last month,is still a cause for concern and is likely to be around 7 per cent by March end.
“Upside risks to inflation persist from insufficient supply responses,exchange rate pass-through,suppressed inflation and an expansionary fiscal stance,” RBI said in its Macro-economic and Monetary Developments Review report.
Overall inflation has remained near double digits since December,2010. It eased to 7.5 per cent in December,2011,driven mainly by the drop in prices of food items. The Finance Ministry expects inflation to come down to 6-7 per cent by March-end.
“The critical factors in rate actions ahead will be core inflation and exchange rate pass-through,” RBI said. It has hiked rates 13 times since March 2010 to control inflation,before pausing the rate hike last month.
It said,price pressures remain with risks emanating from suppressed domestic energy prices,the incomplete pass-through of rupee depreciation and slippage in fiscal deficit.
“Inflation and expectations of inflation remain high and upside risks emanate from exchange rate pass through,revisions in administered prices and higher-than expected current fiscal spending,” it said.
Going forward some further softening of in commodity prices on the back of weaker global growth is likely in 2012-13,it said,adding upside risk to oil price remain from rising geo-political uncertainty.