The Reserve Bank on Friday said that food price uncertainties will continue to weigh on the inflation trajectory going forward, even as it retained 4.5 per cent retail inflation projection for the current fiscal.

In its first bi-monthly monetary policy for current fiscal, the RBI said notwithstanding the cut in petrol and diesel prices in mid-March 2024, the recent uptick in crude oil prices needs to be closely monitored.

Continuing geopolitical tensions also pose upside risk to commodity prices and supply chains, RBI said.

"Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent," RBI Governor Shaktikanta Das said.

Although RBI retained the full year inflation projection, it tweaked the forecasts for the quarter.

RBI forecast April-June quarter inflation at 4.9 per cent and in September quarter at 3.8 per cent.

For December and March quarters, inflation is projected at 4.6 per cent and 4.7 per cent, respectively.

The RBI said that deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March.

The government last month announced a steep cut of ₹100 in cooking gas LPG prices to ease the financial burden on households. Also, public sector oil retailers cut petrol and diesel prices by ₹2/litre, ending a nearly two-year-long hiatus in rate revision.

"Food price uncertainties continue to weigh on the inflation trajectory going forward. A record rabi wheat production would help temper price pressure and replenish buffer stocks. Moreover, early indication of a normal monsoon augurs well for the kharif season," RBI said.

RBI said inflation has come down significantly but remains above the 4 per cent target. Food inflation continues to exhibit considerable volatility impeding the ongoing disinflation process.

"Our ongoing effort is to ensure fuller transmission of policy actions and anchoring of household inflation expectations. The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability," RBI said.

The RBI has the mandate to contain retail or consumer price index (CPI) inflation at 4 per cent, within a band of +/-2 per cent.

Das said two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation.

"The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished," Das said.

The retail inflation in February was 5.1 per cent, while inflation in the food basket was at 8.66 per cent.

For the 2023-24 fiscal, RBI has projected average retail inflation at 5.4 per cent.