Inflation to remain high; RBI hints at another rate hike

Reserve Bank on Tuesday said inflation would continue to face upward pressure in the months ahead, indicating that it could further raise key interest rates to check rising prices in its mid-quarterly policy review on Thursday.

"Global commodity prices, particularly oil, and performance of the monsoon are the key risk factors to inflation management in the months ahead", RBI Governor D Subbarao said in the foreword to the central bank's Financial Stability Report.

Inflation, according to the latest data, rose to 9.06% in May, much above the central bank''s comfort level of 5-6%.

According to the RBI report, "inflation is likely to continue facing upward pressure".

Experts have predicted that the central bank would raise key policy rates by at least 25 basis points in its mid-quarterly policy review on June 16 to curb price rise.

Former Reserve Bank Governor and the present chairman of the Prime Minister''s Economic Advisory Council (PMEAC) C Rangarajan too said: "...I think the RBI will probably look at the inflation issue more seriously and will take some action...(it) will probably decide (what) to do in the context of the high level of inflation".

Describing the inflation numbers as "upsetting", he said: "We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation".

Inflation has continued to remain high despite the Reserve Bank raising the key lending (repo) and borrowing (reverse repo) rates nine times since March 2010.