Inflation still above RBI's comfort zone: Subbarao

Reserve Bank of India (RBI) Governor Duvvuri Subbarao on Wednesday said inflation was still above the central bank’s tolerance level and it would revisit the gross domestic product (GDP) growth numbers in its quarterly policy in January.

RBI had earlier projected that the economy would grow 8.5 per cent in the financial year ending March 2011.

“Inflation is coming down, but is still above RBI’s tolerance level. On the other hand, the growth is encouraging. RBI will revisit the growth numbers in its third quarter review,” Subbarao told reporters after a meeting with West Bengal Chief Minister Buddhadeb Bhattacharjee.

To tame inflation, RBI in November raised interest rates for the sixth time this year. It raised the repo rate (at which it lends to commercial banks) by 25 basis points (bps) to 6.25 per cent and the reverse repo rate (which it pays to the banks for deposits) by 25 bps to 5.25 per cent. The cash reserve ratio was kept unchanged at six per cent.

However, liquidity has tightened in the financial markets due to advance tax payments and several large short-term deposits coming up for redemption at banks.

On Monday, RBI announced two steps to ease liquidity in the market by infusing Rs 17,000 crore into the system.

In its mid-year analysis of the economy, tabled in Parliament on Tuesday, the finance ministry estimated that the 2010-11 growth would be 8.75 per cent with a variation of 0.35 per cent on either side. It, however, cautioned that economic conditions in Europe posed a downside risk.

Finance Minister Pranab Mukherjee has indicated the economy is on track and could grow as much as 9.1 per cent this financial year.