Mumbai: The Reserve Bank on Monday said the near-term inflation outlook still remains sticky on the back of weak monsoon, higher support price for farm crops and the falling rupee.

Headline inflation persisted above 7 percent during the first quarter of the fiscal due to a rebound in food rates as well as high fuel prices, negating the deceleration in non-food manufactured products inflation or core inflation which fell below 5 percent in June, the apex bank said.

"The near-term inflation outlook is conditioned on the spatial and temporal distribution of the monsoons, the impact of exchange rate pass-through and likely trends in global commodity prices," the RBI said in its `Macroeconomic and Monetary Developments' report released on the eve of the first quarter review of the monetary policy.

"While moderation in global commodity prices could ease the pressure from imported inflation, pass-through of the rupee depreciation will partly offset the impact. The increases in MSP and sustained increases in wage levels could further exert pressure on overall inflation," it said.

The report warned administered prices of fuel do not reflect the trends in global market prices and revision of these would be necessary to reduce the extent of suppressed inflation. "The persistence of inflation in an environment of slowing growth is a major challenge for monetary policy."

The softening impact of growth moderation on inflation was partly offset by structural rigidities in the supply of food as well as the exchange rate depreciation, it noted.

Noting that the benefits from the declining global commodity prices were partly offset by the falling rupee, it said "the near-term inflation trajectory could remain sticky and conditioned by a number of risks that emanate from the unsatisfactory progress and distribution of the monsoons, higher MSPs announced for kharif crops and the impact of the exchange rate pass-through."


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