The Reserve Bank lowered retail inflation projection in the range of 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices.
The broad-based weakening of food prices imparts downward bias to the headline inflation trajectory going forward, the RBI said in its fifth bi-monthly monetary policy announced in Mumbai.
Meanwhile, the central bank maintained status quo in monetary policy announcement, leaving the key interest rate unchanged at 6.5 per cent.
In its previous policy review in October, the apex bank had projected the retail inflation to be around 3.9-4.5 per cent in the October-March period of 2018-19.
In contrast to the food prices, there has been a broad-based increase in inflation in non-food groups.
International crude oil prices have declined sharply since the last policy and the price of Indian crude basket collapsed to below USD 60 a barrel by end-November after touching USD 85 a barrel in early October.
"Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2 per cent in H2 FY2018-19 and 3.8-4.2 per cent in H1 FY2019-20, with risks tilted to the upside," the RBI said.