Food-price volatility may pose risk to India's inflation: RBI

MUMBAI, Sept 22 (Reuters): India's headline inflation may average 4.5 per cent in the second half of the fiscal year, aided by weaker crude oil prices, although volatility in food prices can pose a challenge, the central bank said in its monthly bulletin on Friday.

"Some vegetable price shocks have begun to reverse, and if this continues and broadens, the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us," the Reserve Bank of India (RBI) said.

India's retail inflation was at 3.65 per cent in August, higher than the revised 3.60 per cent in July, as vegetable prices soared.

Food prices, which account for nearly half of the retail inflation, rose 5.66 per cent in August, compared with a 5.42 per cent climb in the previous month.

The RBI targets inflation at 4.0 per cent with a tolerance band of two percentage points on either side.

An unfavourable base effect may "haunt" September's inflation print, the RBI said. Household consumption, however, is poised to grow faster in July-September period as headline inflation eases, it added.

The RBI, which kept its key interest rate unchanged for the ninth straight meeting in August, is expected to proceed cautiously with monetary policy easing.

Its next monetary policy meeting is scheduled for Oct. 7-9. The gap between banks' credit and deposit growth is beginning to narrow, with lenders continuing to rely heavily on certificates of deposit to meet funding needs, the central bank noted.