New Delhi: Reserve Bank of India Governor D Subbarao Monday said that June inflation at 7.25% is still way above its threshold level, indicating that the central bank may keep its policy rates on hold in its upcoming monetary policy review on July 31 despite slowing economic growth.
India's wholesale price index (WPI) inflation moderated to 7.25% on-year in June from 7.55% recorded in May, the government said Monday, but it is above the RBI's comfort zone, Subbarao said at an event.
"We are way above threshold... so people ask about what is our threshold level of inflation that may be around 5%," he said.
Subbarao further said that sacrificing economic growth in the short term is inevitable to achieve price stability.
"The Reserve Bank of India is sacrificing growth only in the short-term and there is no growth inflation trade off in the medium term," he said.
India's fiscal fourth quarter (Jan-Mar) gross domestic product (GDP) grew 5.3% on-year, slower than the growth rate achieved even during the recession period of 2008-09 and slowest since March 2003.
On June 18, the RBI kept its policy rates steady on concerns over inflation despite sharp slowdown in economic growth, and said that future action on policy rates will depend on factors mitigating inflationary risks.
Earlier, the RBI had hiked its key policy rate -- repo -- by 375 basis points in 13 tranches between March 2010 and October 2011 to tame stubbornly high inflation, until it pressed the pause button on rate hikes in December 2011 to address concerns about deteriorating economic growth.
Subsequently in April, the RBI had cut the repo rate by a sharper-than-expected 50 basis points to support growth, but had warned that it may have limited room to cut rates further due to upside risks to inflation.