Retail inflation is expected to average 4.4 per cent this financial year, up from 3.6 per cent recorded in the last fiscal, says a report.
According to Kotak Economic Research, CPI inflation is expected to remain at sub-5 per cent level but uncertainties in domestic, global front could impact its trajectory.
"We expect CPI inflation to stay broadly capped at 5 per cent in FY2019," Kotak Economic Research said in a note, adding, "we expect CPI inflation to average 4.4 per cent in FY2019 (3.6 per cent in FY2018)".
The factors that are likely to impact inflation number going forward include volatility in the global financial markets, oil prices, MSP pass-through and staggered impact of HRA increases by states.
The report further noted that stable crude oil prices and partial pass-through of MSP on inflation is less of a concern in FY2019.
On Reserve Bank's policy stance, the report said the RBI is expected to remain on hold through rest of this financial year.
"While the growth-inflation dynamics and the assessment of monetary policy transmission may keep the MPC on hold through rest of FY2019, we remain watchful of the INR depreciation on the back of ongoing emerging market meltdown in financial assets," it said.
Moreover, consistent depreciation in the rupee may warrant unconventional measures by the RBI, including further rate hikes, the report noted.
The rupee has been among the worst-performing currencies against the dollar compared with its peers so far this year and breached the 70-mark against the American unit in intra-day trade on August 14 amid global uncertainties and concerns over inflation.
In the August policy review meet, the six-member MPC headed by RBI Governor Urjit Patel for the second time in two-month raised interest rate by 0.25 per cent on inflationary concerns.
The next meeting of the MPC is scheduled on October 3-5, 2018.