Reserve Bank of India (RBI) has said that rising prices of fuel are likely to weigh on its rate-setting panel, Monetary Policy Committee (MPC), at its 3-day meet which is scheduled to begin June 4. This is the first time that the MPC will meet for three days instead of the usual two days meeting, owing to certain administrative exigencies.
The monetary policy review will take into account the retail inflation, which rose to 4.58% in the month of April 2018, as compared to 4.28% in March 2018 and 2.99% in April 2017, on account of increasing prices of petrol and diesel. RBI mainly factors in retail inflation, based on the Consumer Price Index (CPI), while deciding the key interest rate. The domestic retail petrol and diesel prices are at all-time high on account of rise in crude oil prices in international market. High petrol and diesel prices can further fuel inflationary expectations.
At the April 4-5 MPC meeting, RBI deputy governor and member Viral Acharya had cited revival in investment activity and an improvement in capacity utilisation for his switch from a neutral stance to shift ‘decisively to vote for a beginning of withdrawal of accommodation in the next monetary policy meeting in June’. A majority of the six-member panel had flagged upside risks to inflation as it kept the benchmark repurchase rate unchanged at 6%.