"Given the outlook for inflation primarily in the context of the economy of oil in India, however, it may be difficult to contain the inflation in the range of 5-5.5 per cent projected earlier without an appropriate policy measure," RBI said in its mid-term review of the annual credit policy.
It said there had been only partial pass-through of international crude oil prices into domestic petroleum product prices so far and second round effects had not been significant, which is a matter of concern.
Inflation, the central bank said, as measured by variations in the wholesale price index, on a point-to-point basis, receded from six per cent in April 2005 to 4.6 per cent by October 8, 2005.
"It is also necessary to recognise and formulate a forward looking policy response in a manner that the growth momentum and the potential for higher growth is realised without adding to the inflation expectations," RBI said.
"There has to be readiness to take further measures as warranted to meet the challenges posed by the evolving situation, given the unfolding of the risks," it said.
Major reasons fuelling inflation were upward adjustments in the administered prices of petrol, diesel and electricity and increase in the prices of aviation turbine fuel, naphtha, furnace oil and iron & steel, it said.
