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By Surojit Gupta and Suvashree Dey Choudhury

MUMBAI (Reuters) – The Reserve Bank of India (RBI) cautioned on Monday that inflation is still above its comfort level, and elevated levels of wholesale and consumer price inflation remain a challenge for monetary policy.

The central bank, which is expected to raise interest rates for the sixth time this year on Tuesday, also said high food price inflation was a concern.

“While moderating momentum of the non-food manufactured inflation suggests that recent monetary actions are having an impact, inflation still remains above the comfort level,” the RBI said in a report a day before it is expected to raise key rates by 25 basis points each.

It said the objective of non-disruptive normalisation of the policy rate seems to have generally been met against the backdrop of a robust growth outlook.

Steps taken since Jan 2010 could help in moderating headline inflation by the end of March, the RBI report said.

The RBI has raised rates five times this year and is expected to do so again on Tuesday at its mid-term policy review to battle stubbornly high inflation.

The central bank’s inflation comfort zone is perceived to be around 5 or 6 percent.

“Going forward, the growth-inflation outlook will dominate the policy response, and the nature and timing of monetary policy actions would have to be conditioned by their expected effectiveness in attaining the intended goal,” the RBI report said.

A survey of forecasters conducted by the RBI revised the 2010/11 fiscal year growth projection for Asia’s third-largest economy marginally upwards to 8.5 percent, from 8.4 percent in the previous forecast.

Headline inflation in India inched up to 8.62 percent in September on higher food prices from 8.5 percent in the previous month, after six straight months in double-digits through July.

Annual food price inflation eased to 13.75 percent in mid-October but remains high, in part because of rising demand as incomes increase.

(Editing by Tony Munroe)

source: Yahoo finance

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