Inflation to remain high at 7.5% in FY11: Goldman

Goldman Sachs today said inflation will remain high at 7.5 per cent during the fiscal on the back of strong demand, leading the Reserve Bank to further tighten policy rates to reign it in.

"With demand remaining strong, we think core inflation will likely remain elevated through FY11, and maintain our above-consensus inflation forecast of 7.5 per cent," Goldman Sachs said.

It said inflation would prompt further action, to tighten the policy rates by the RBI but added that the hike is not expected before the next policy meeting on July 27.

"We persist with our view that effective policy rates may rise by 300 basis points (3 per cent) in 2010. Indeed, effective short-term policy rates have risen by some 200 bps year-to-date, with the recent liquidity tightening playing a large role," Goldman said.

Inflation has been ruling high over the past few months, leading the central bank to hike policy rates twice in the past couple of months to contain price rise. Driven by higher prices of pulses, milk and fruits, food inflation rose to 16.55 per cent for the week ended May 22.

The overall inflation for April, that includes food and manufactured goods, stood at 9.59 per cent, a tad less than 9.90 per cent in March.

On the country's economic growth, Goldman retained its forecast of 8.2 per cent for FY11, as against the government expectation of 8.5 per cent.