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The RBI maintained the neutral stance of monetary policy owing to the following factors:
1. Kharif crops: The revised formula for MSP (minimum support price) as announced in the Union Budget 2018-19 for kharif crops may have an impact on inflation, although the exact magnitude will be known only in the coming months, said the RBI policy statement.
2. HRA revisions: The staggered impact of HRA revisions by various state governments may push headline inflation up, RBI said. House Rent Allowance (HRA) is an amount paid by employers to employees as part of their salaries. While the statistical impact of HRA revisions will be looked through, there is a need to watch out for any second round effects, according to the statement.
3. Fiscal Slippage of budget: In case there is any further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path, it could adversely impact the outlook on inflation, said RBI. There are also risks to inflation from fiscal slippages at the level of states on account of higher committed revenue expenditure.
5. Industrial cost: Firms polled in the Reserve Bank's Industrial Outlook Survey expect input and output prices to rise, going forward.
6. Crude oil: Recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook.
Against the above backdrop, the MPC decided to keep the policy repo rate on hold and continue with the neutral stance.