Global credit rating agency Moody's expects the Reserve Bank of India to further tighten monetary policy to contain rising prices, even while projecting moderation in economic growth rate to 7.6 per cent.
"If the inflation fails to ease in coming weeks, the Reserve Bank of India will have no choice but to further tighten monetary policy," Moody's said in its 'Macro Roundup; India's inflation pain persists'.
The report said that the economic growth of the country would moderate to 7.6 per cent in the current fiscal as against nine per cent achieved in 2007-08.
Pointing out that inflationary pressures remain 'stubbornly' strong in India despite aggressive monetary tightening by the central bank in recent months, the rating agency said, "the rise in global commodity and food prices is still a major driver of inflation".
The RBI, since the beginning of the current financial year, has increased the short term (repo) lending rate by 1.25 per cent and mandatory cash reserve ratio by 1.5 per cent. Both these rates currently stand at 9 per cent.
The recent decline in global oil prices, it said, will not help in cooling inflation in India because prices of petroleum products in the domestic markets are below the international levels.
"The retreat of oil will only help ease the pressure on the government to further raise domestic energy prices," the rating agency said.
Secondly, it added, as general elections are due, the government will avoid any policy changes that could provoke social dissatisfaction.
