RBI warns on inflation risk; rate rise seen

The Reserve Bank of India (RBI) said inflation may stay high for longer than earlier anticipated due to a rise in global commodities prices and domestic supply pressures that have pushed up food prices. The central bank also said downside risks to growth had receded.  After raising rates six times since March to tame inflation, the central bank paused in December but indicated at the time that further rate hikes were possible, with inflation remaining well above its comfort zone. “As a result of newer factors and increased risks, the inflation trajectory is likely to show some persistence and moderate only gradually.” The central bank also called for measures to address structural drivers of inflation, which include inefficiencies in the agricultural sector. A sharp rise in food prices, a key driver of inflation in India, has been putting upward pressure on broader prices. The wholesale price index, the most widely watched gauge of prices in India, rose 8.43% in December from a year earlier, compared with 7.48% in November and well above the RBI’s March-end projection of 5.5%.