Indicating that inflation remains low and stable worldwide, Reserve Bank of India on Tuesday said the outlook is now fraught with the upward risk emanating from the commodity markets.
"Deflation risks have receded with the strengthening of global recovery and a number of commodity prices have risen in the recent months. Indeed, the outlook is now fraught with upward risk emanating from commodity markets, although there are also prospects of commodity prices levelling off in the medium term," RBI said in its Credit Policy announced in Mumbai on Tuesday.
Monetary and Credit Policy 2004-05
Considerable uncertainty surrounds the prospects of international crude oil prices. The depreciation of US dollar could be indicative of incipient inflation, however benign it may be in the current phase of business cycle, it said.
Prices of key agricultural commodities would depend upon weather conditions, it added.
In India, as domestic economic activity strengthens, inflation is likely to respond with specific demand-supply conditions in key movers -- iron and steel, cotton and fuel -- dominating intra-year movements.
A potential inflexion in inflation ahead would be triggered by the timing of adjustments in the prices of administered items, as also the possibility of a further spurt in global commodity prices.
Government had said inflation in 2004-05 is expected to be below five per cent.