New Delhi: The Reserve Bank of India (RBI) Monday said that future action on policy rates will depend on factors mitigating inflationary risks and that its policy stance will be guided by growth-inflation dynamics.
"Both headline and retail inflation rates are rising, which have a bearing on inflation expectations. Future actions will depend on a continuing assessment of external and domestic developments that contribute to lowering inflation risks," the RBI said in its mid-quarterly monetary policy review for 2012-13.
India's wholesale price index (WPI) inflation accelerated to 7.55% on-year in May from 7.23% recorded in April, which is still higher than the central bank's comfort level.
While, consumer price index (CPI) rose from 8.8% in February to 9.4% in March and further to 10.4% in April, indicating that prices at the retail level are much higher.
Meanwhile, India's fiscal fourth quarter (Jan-Mar) 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, hurt by contraction in manufacturing and slowdown in agriculture and services.
Earlier Monday, the RBI kept the repo rate and cash reserve ratio unchanged, dampening widespread market expectations of policy rate cuts, saying that reduction in policy rates at this point could exacerbate already high inflation rather than bolster economic growth.
Managing liquidity will also remain the RBI's priority and will therefore continue to use open market operations as and when warranted to contain liquidity pressures, it said.
The central bank has been conducting open market operations aggregating over Rs 1.61 trillion between November 2011 and May 25, 2012 to ease the liquidity crunch.
Besides, the RBI is ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments, it added.