November 2, 2010 3:09 AM EDT
The Reserve Bank of India (RBI) cautioned on Monday that inflation is still above its comfort level, adding to expectations that it will raise interest rates for the sixth time this year at its monetary policy review on Tuesday.
Elevated levels of wholesale and consumer price inflation remain a challenge for monetary policy while high food price inflation is also a concern, the RBI said in a report.
But it also noted that its policy moves so far were having an effect and that price rises would moderate by March.
"There is an element in this report that shows that the RBI can pause after tomorrow's rate hike," said A. Prasanna, economist at ICICI Securities Primary Dealership in Mumbai.
Earlier on Monday, data showed that Asia's third-largest economy delivered strong manufacturing growth in October, with the HSBC Markit Purchasing Managers' Index rising to 57.2 from 55.1 in September. A reading above 50 denotes expansion.
Follow us
"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 its report a day before it is expected to raise key rates by 25 basis points each.
The central bank said it appears to be on target with its objective to normalise policy rates without disrupting growth.
The RBI's repo rate, at which it lends to banks, stands at 6 percent.
RAISING RATES
Earlier on Monday, Finance Minister Pranab Mukherjee said inflation in India is a matter of concern, but is expected to moderate to acceptable levels.
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.
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," the RBI's report said.
The yield on India's benchmark 10-year bond rose as high as 8.18 percent on Oct. 21 on concerns of a policy rate hike and also as tight cash conditions weighed on sentiment.
The Most Dangerous US States to Drive In 2012 [SLIDESHOW]
After Greece Exits The Euro, What's Next? An Illustrated Guide To 5 Possible Scenarios
TCS World 10K Bangalore 2012 Free App For iPhone, Android, BlackBerry, Windows Phone [Download Links]
Spain's Bankia Suspends Shares On Bailout Rumors
Rare Aerial Footage Showing Uncontacted Yanomami Indian Tribe in Brazil Released [VIDEO, PICTURES]We value your privacy. Your email address will not be shared.
