However, the central bank's decision to ask banks to price all floating rate loans to an external benchmark from 1 April could ensure better policy transmission.
"Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2 per cent in H2 FY2018-19 and 3.8-4.2 per cent in H1 FY2019-20, with risks tilted to the upside", the RBI said.
In contrast to the food prices, there has been a broad-based increase in inflation in non-food groups. Oil prices have fallen almost 30 per cent after hitting a high of $86/barrel early October. Currently, SLR stands at 19.5 per cent. SLR refers to the share of bank's total deposit that it needs to maintain itself as liquid assets.
"We expect interest rates to be on hold until March", said A Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai."We also expect the tone of the statement to be dovish given inflation and growth momentum have softened, and the RBI will continue to keep infusing liquidity as bank lending growth needs to be supported to boost overall economic growth".
The bond markets, which interpreted this as a possibility of a future rate cut, saw the 10-year bond yield fall over 13 bps during trade.
It said the projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards.
The RBI also slashed its inflation projection to 2.7-3.2 per cent by March-end from its prior view of 3.9-4.5 per cent. It said that credit offtake from the banking sector has continued to strengthen even as global financial conditions have tightened.
To control inflation and the growth, RBI uses certain tools like cash reserve ratio, statutory liquidity ratio, repo rate, and reverse repo rate.
Expert committee for MSMEs: MSMEs play a key role in the economy but they remain vulnerable to structural and cyclical shocks, given their predominantly informal nature.