RBI: will target inflation in coming months

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The Reserve Bank of India will target inflation in the coming months, central bank Governor Duvvuri Subbarao said on Monday.

"It is the responsibility of the Reserve Bank to manage expectations about inflation and what we are going to do in the next few months is to target inflation," he said at an event in Chennai.

Subbarao also said it is important for the government to withdraw the stimulus and that the government and central bank would have to coordinate in withdrawing stimulus.

He reiterated that the economy is back to growth and added that the challenge is to accelerate momentum.

At its monetary policy review on Friday, the central bank lifted the cash reserve ratio (CRR) -- the amount of funds banks must hold at the central bank -- by a higher-than-expected 75 basis points and held key interest rates steady.

It also raised its growth and inflation forecasts while calling on the government to roll back its borrowing, and highlighted that its main policy instruments are at levels more consistent with a crisis situation than with a fast-recovering economy.

After the review, Subbarao also told reporters that dependence on the fiscal stimulus is less now and the government should start exiting in the budget.

Despite rising inflationary pressures, the government had pressured the RBI to hold off raising rates, saying it would undermine economic recovery, hurt only slowly picking up bank lending and spark potentially destabilising capital inflows.

The finance minister will present the federal budget on Feb. 26.