Mumbai: India’s central bank said on Monday, a day before its annual monetary policy announcement where it is widely expected to further tighten the policy, the weight of policy balance may have to shift to containing high inflation.
“While recovery in private demand needs to be stronger to reinforce the growth momentum, the already elevated headline inflation suggests that the weight of policy balance may have to shift to containing inflation, since high inflation itself will dampen recovery in growth,” the Reserve Bank of India (RBI) said.
Though inflation is expected to moderate in the next few months from the peak levels seen recently, upside risks remain, the RBI said in its report on macroeconomic and monetary developments in fiscal year 2009-10 (April-March).
The central bank expects economic growth to be higher in 2010-11 than in 2009-10.
“Asset prices increased at a relatively faster pace in the recent months, reflecting optimism about the economy’s prospects as well as easy liquidity conditions,” RBI said.
Of the 20 economists polled by Reuters last week, 19 expect the central bank to raise the repo rate by at least 25 basis points, while 17 expect a similar jump in the reverse repo rate.