Mumbai The Reserve Bank of India (RBI) on Thursday said there is a possibility of high food prices spilling over to other parts of the economy, a day before it is expected to tighten policy at its quarterly review of monetary policy.
”Though the inflationary process still remains largely concentrated in food articles, there is a possibility of gradual spilling over of the pressure to other segments in the WPI basket, early signs of which were seen in December 2009,” the Reserve Bank of India (RBI) said in its December quarter review of macroeconomic and monetary developments.
”Thus growth outlook has clear upside prospects and the inflation outlook has upside risks,” the RBI said.
The central bank said the possibility of surge in capital inflows along with the domestic liquidity condition may also affect inflationary conditions.
”In view of the dominance of food price inflation, however, balancing the policy needs of supporting durable return to the high growth path while avoiding a situation of generalised increase in inflation through monetary policy actions has emerged as a delicate challenge for the Reserve Bank,” RBI said.
A Reuters poll last week showed 24 out of 25 economists expect the RBI to raise the cash reserve ratio for banks by up to 50 basis points at Friday’s review. Most economists expect the central bank to keep core interest rates on hold.