RBI hints at rate hike again as high inflation persists

The Reserve Bank today indicated that it may hike interest rates yet again as inflation, which is hovering around the double-digit mark, is likely to remain high in the next couple of months.

"High inflation is likely to persist in near-term before moderating as falling global commodity prices provide limited comfort," RBI said in its macro economic policy review.

The overall inflation in September stood at 9.72%, higher than RBI's comfort level of 5-6%.

The Reserve Bank of India (RBI) said "inflation challenge remains significant" and the monetary policy actions would be guided by emerging growth-inflation dynamics. The headline inflation, as measured by wholesale price index (WPI), has been hovering above 9% since December, 2010.

The RBI also said that the baseline inflation path still remains sticky and broadly unchanged from earlier projections. "This has made policy choices more complex. Some sacrifice of growth is inevitable in the current milieu of high inflation," it said.

The RBI had earlier projected headline inflation to decline to 7% by March-end.

It said inflation pressure in the system is strong and persistent due to structural rigidities, continuing strong demand and the adaptive nature of inflation expectations.

Besides, food inflation is also likely stay elevated due to demand-supply mismatches.

Food inflation, which account for over 14% in headline inflation, stood at a six month high of 10.60% in the week ended October 8. To control inflation, RBI has hiked policy rates 12 times since March 2010.