RBI hints at rate hike in annual monetary policy

Mumbai(IANS) The Reserve Bank of India (RBI) Monday hinted at a hike in key interest rates to keep inflation in check while predicting a faster 8.2 percent growth in the current fiscal provided there is a normal monsoon.

The RBI in a document -- macroeconomic and monetary developments 2009-10 -- said that while inflation was expected to moderate in the coming months, "upside risks" were appearing on the horizon, including rise in commodity prices.

The RBI, which has been facing a classical dilemma of whether to keep the momentum of growth or to rein in inflation, said it was time that high inflation was tackled.

"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.

"It is important to guard against the risk of hardening of inflation expectations conditioned by near double digit headline WPI inflation," said the report.

The document serves as a background to the monetary policy statement for the current fiscal the central bank would announce Tuesday.

"Output growth in 2010-11 is expected to be higher than in 2009-10, assuming a normal monsoon," the central bank said in the document, adding that all key sectors of the economy -- agriculture, services and industry -- would see robust growth.

Among other things that would help sustain the Indian growth trajectory are a rise in private consumption and a pick up in investments.

The RBI's Survey of Professional Forecasters predicts the economy to grow at about 8.2 percent in 2010-11.

As per the advance estimates of the Central Statistical Organisation, the Indian economy grew at 7.2 percent for the fiscal ending March, after a moderate expansion of 6.7 percent in 2008-09 -- this even as agricultural production saw a dip of 0.2 percent during the period.