RBI hints at higher interest rates

The Reserve Bank said on Thursday it would reassess its soft policy stance amid food inflation soaring past 17 per cent even as the prime minister's advisory panel and others called for tightening money supply.

"Clearly now going forward, it (accommodative monetary stance) will have be to reassessed," RBI deputy governor Usha Thorat said at an Indian Council for Research and International Economic Relations-Organisation for Economic Cooperation and Development conference.

She said a fragile economic recovery was at the back of RBI when it continued accommodative stance in its October policy review.

However, the economy expanded by 7.9 per cent in the second quarter from 6.1 per cent in the previous quarter, giving hopes of durable economic rebound.

Thorat said the Reserve Bank is looking at wholesale price inflation to reach 6-6.5 per cent with upward bias by this fiscal end.

"CPI inflation is still elevated," she added. Before the conference, Prime Minister's Economic Advisory Council chairman C Rangarajan told reporters that rising food prices are a matter of concern and must be reined in by the RBI otherwise they will push up prices of manufactured items as well.

"Food prices must be controlled, otherwise they have a tendency to lead to manufacturing inflation...this will require monetary action by RBI, especially (money) supply management," he said.