RBI calls for continued policy normalisation

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Unwinding of loose monetary policy that started in October 2009 should continue until inflation expectations are firmly anchored and inflation is brought down, the Reserve Bank of India said on Monday, a day before it is widely expected to raise interest rates.

"With receding concerns relating to the recovery and given the emerging risks of generalised inflation, monetary policy measures have to continue the calibrated normalisation process," the Reserve Bank of India (RBI) said in a report.

The RBI has increased interest rates three times since March by 25 basis points each time and is expected to do so again at its quarterly review on Tuesday.

"For containing the inflation persistence and anchoring inflation expectations, anti-inflationary monetary policy actions become a necessity," the RBI said in its first quarter of 2010/11 report on macroeconomic and monetary developments.

The RBI also expressed bullishness for the growth outlook for 2010/11 on a better monsoon and robust industrial production, and said growth should exceed the 8% for the year that it had projected in April.

A survey of forecasters conducted by the RBI revised the 2010/11 growth projection upwards to 8.4%, from 8.2% in the previous forecast.

India's annual headline inflation remained over 10% for the fifth straight month in June, all-but cementing expectations the RBI will raise interest rates for the second time this month to contain surging prices.

The food price index rose 12.47% in the year to July 10, against its 12.81% reading in the previous week.