Inducements to inflation are indeed many in the road ahead. To wit, pent-up demand after demonetisation, lower bank lending rates, the second tranche of payments based on the Seventh Pay Commission recommendations, and an uptick in global oil, metals and agri-commodity prices after ~3 benign years.

Not surprisingly, the sharper-than-expected fall in inflation over the past few months has already started correcting as remonetisation gained currency. And food price pressures could build anew if El Niño disrupts the south-west monsoon this year. To boot, core inflation, which has been sticky, could edge up if domestic demand. Given the predicament, we foresee CPI inflation averaging 5% in fiscal 2018, 30 bps higher than in fiscal 2017. 
 

Monetary policy might have to clearly articulate the glide path to the 4% CPI target in the medium term. Also, while fiscal policy and structural reforms, will be as crucial to quelling incipient inflation, it will take time for the benefits to work through an enduringly lower inflation.

So the case for a disinflationary monetary policy will exist for a while, which, in turn, could curb near-term growth.