RBI official: Need aggressive policy action

RELATED NEWS Food inflation eases; RBI to stay hawkish

A Reserve Bank of India official said current policy rates will not tame inflation and aggressive action is needed, two days after it raised rates more sharply than expected and adopted a hawkish tone.

Bond yields and swap rates rose following the remarks, which were unusually forceful for a Reserve Bank official.

Also on Thursday, India reported that food inflation eased in mid-July but fuel inflation rose slightly.

"You are injecting liquidity at 5% and inflation is at 10%. They will never be able to control inflation, everything else remaining the same," the official told reporters, declining to be identified.

"Monetary policy has to be aggressive," the official said.

Wholesale price index (WPI) inflation is on track to hit 11% in July, which would make it six straight months in double digits, and many economists have said the Reserve Bank of India (RBI) is behind the curve in taming inflation despite four interest rate increases since March.

"Monetary policy works with a time lag," the RBI official said, adding that the summer monsoon rains will have more impact in curbing inflation over the next 2-3 months due to the time-lag in monetary transmission.