The Reserve Bank did not go in for a hike in key rates yesterday, despite expecting a surge in inflation going forward, as the price rise is being driven by higher house rent allowance (HRA) to government employees, Governor Urjit Patel said.

Nearly 0.35 per cent of current inflation is due to the HRA hikes as per the 7th pay panel recommendations, he said.

Even if one were to look at the future, the inflation excluding the HRA will be 4.5 per cent in next fiscal, he added.

RBI kept the key interest rate unchanged at 6% for the third time in a row saying that higher government spending would accelerate inflation, and warned of risks from wider fiscal deficit.

"Taking all that into account, we felt that at this stage, without more data coming in, it was not necessary to change the repo rate or the stance," Patel told reporters after the 6th bi-monthly review of the monetary policy in the current fiscal, ending March 31.

He added that in the 2018-19 fiscal, there may be a few months or quarters when the inflation will be higher than the 4.5 per cent expectation.

RBI said it expects the headline inflation to be 5.1-5.6 per cent in the first half of next fiscal and cool down to 4.5-4.6 cent in the second half.
It also upped the inflation forecast for the fourth quarter of the current fiscal to 5.1 per cent from the earlier expectation of 4.3-4.7 per cent inflation in the second half of the fiscal.

Inputs From PTI