RBI signals series of rate hikes to tackle inflation

The Reserve Bank of India (RBI) today set the stage for a series of rate hikes to tackle inflation, which the central bank believes is likely to remain above the comfort zone in the near term. Though RBI expressed satisfaction on growth prospects, it said higher growth is expected to coexist with high inflation. “The inflation outlook, which is being conditioned by both demand-side and supply-side factors, suggests slow-paced moderation in inflation, with the possibility of rigidity at above the comfort level in the near term,” RBI said in its macroeconomic and monetary developments report today.   Inflation based on the wholesale price index was at 8.43 per cent in December. RBI, which has projected March-end inflation at 5.5 per cent, is expected to revise its projection upward.  The central bank said sectoral imbalances in several non-cereal food items may not be addressed by higher policy rates, but aggregate demand-side pressures on inflation would have to be contained in a forward-looking manner. “The anti-inflationary focus of the monetary policy would have to continue, recognising the limits of monetary policy in dealing with structural pressures on inflation, and the need for forward-looking response to demand-side pressures. Since a lower inflation regime is essential for sustainable high growth, containing inflation becomes the dominant policy objective in the current environment,” RBI said.