Retail inflation was at 9.52% last month. Inflation as measured by the wholesale price index was at a six-month high of 6.1% in August, compared with the RBI's comfort level of 4-5%.
To contain inflation, the RBI today hiked the key repo rate, or short-term lending rate, by 25 basis points to 7.5% from 7.25% with immediate effect.
"Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said. The action is intended to address inflationary pressures to provide a stable nominal anchor for the economy, he said.
"What is equally worrisome is that inflation at the retail level has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence," Rajan said.
He said better prospects of a robust kharif harvest will lead to some moderation in retail inflation, but there is no room for complacency.