Inflation likely to stay high hurting growth: RBI

"Persistent high inflation could endanger the growth objective and also amplify risks to inclusive growth, containing inflation will have to be the predominant objective of monetary policy in the near-term," RBI said in its macroeconomic review released on the eve of the quarterly policy.
It said that the upside risk to inflation have increased and supply side constraints and high global commodity prices could dampen the impact of tight monetary policy.

"While inflation is likely to soften in coming months it is likely to stay elevated above the earlier anticipated path," it said. The RBI has projected overall inflation to be at 5.5 per cent by March end.
The overall inflation for December shot up to 8.43 per cent on high prices of food items, from 7.48 per cent in November.

The RBI said continued high food inflation is the main cause of overall inflation holding up, adding that return of inflation to a more acceptable level would be gradual.Ahead of the third quarter monetary policy review, the RBI said demand-supply mismatch in certain food items would keep prices high.

"The upside risks to inflation, particularly from the impact of supply rigidities and hardening commodity prices have increased, which could dampen the expected impact of monetary policy to some extent," it said.

The RBI said that inflation could be contained if the government takes steps to improve supply side bottlenecks and make farm gate products easily available at the retail end.The RBI said it expects some moderation in the food inflation, which is currently in double digits, with the advent of rabi crops in the market.

The food inflation for the week ended January 8 stood at 15.52 per cent. It had shot up to 18.32 per cent in the end of December on high prices of vegetables, including onion.

"Persistence of food inflation has become a primary impediment to faster moderation of inflation," it said. The RBI said supply disruptions in many commodities and indications of further quantitative easing by some advanced economies have pushed up prices globally.

"Domestic prices are now significantly impacted by the global commodity price movements, and hence, rising international prices are an important source of upward risk to domestic inflation," the RBI said.

The risks to generalised inflation cannot be overlooked as inflation expectations are currently ruling high. Anchoring inflationary expectations would be necessary to mute the second-round impact of supply-side shocks, it said.