The RBI may opt for a rate hike of at least 25 basis points, with inflation set to stay high for a longer period than anticipated due to a rise in global commodities prices and domestic supply side pressures that have recently pushed up food prices.
The move has been largely expected with food inflation remaining persistently high. "While downside risks to growth have receded, upside risks to inflation have increased," said RBI in a document titled, "the Macroeconomic and Monetary Developments in the Third Quarter of 2010-11”.
"Since a lower inflation regime is essential for sustainable high growth, containing inflation becomes the dominant policy objective in the current environment," the RBI said .
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