Reserve Bank on Wednesday said it expects retail inflation at 5.2 per cent in the first half of the current fiscal and revised downwards the target to 5 per cent for the quarter ended March.

While headline inflation at 5 per cent in February 2021 remains within the tolerance band, some underlying constituents are testing the upper tolerance level. Going forward, the food inflation trajectory will critically depend on the temporal and special progress of southwest monsoon in the 2021 season, RBI Governor Shaktikanta Das said on Wednesday while announcing the first monetary policy for the current fiscal.

Reserve Bank of India (RBI) has kept the key repo rate unchanged at 4 per cent to support growth in the current situation.

Das said there has been some respite from the incidence of domestic taxes on petroleum products through coordinated actions by the Centre and states could provide relief on top of the recent easing of the international crude prices.

However, the combination of international commodity prices and logistics cost may push up input price pressures across manufacturing and services, he added.

"Taking into consideration all these factors, the projection for CPI inflation has been revised to 5 per cent in fourth quarter of 2020-21; 5.2 per cent in the first quarter 2021-22; 5.2 per cent also in second quarter of 2021-22; 4.4 per cent in third quarter and 5.1 per cent in fourth quarter with risks broadly balanced," Das said.

Earlier, the central bank had projected retail inflation at 5.2 per cent for the 2021 March quarter.

RBI has the mandate to keep inflation at 4 per cent with a bias of plus or minus 2 per cent.