Despite last week's policy initiatives by the government on fuel prices and investments, the Reserve Bank of India on Monday indicated that it will continue its wait-and-watch policy on interest rates in view of the prevailing high prices and last week's diesel price hike.

The bank, which wants the Centre to continue with its reform process, said it will cut rates only after inflation comes down.

"As inflationary tendencies have persisted, the primary focus ... remains containment of inflation and anchoring of inflation expectations," RBI governor D Subbarao said in the mid-quarter monetary policy review.

"This warrants maintaining the momentum of recent policy actions to step up investment, alleviate supply constraints, and improve productivity."

Driven by higher food prices due to a deficient monsoon, WPI-based inflation stood at 7.55% in August, up from 6.87% in July which was a near three-year low.

 

For the year, the wholesale price index (WPI) inflation averaged 8.81% in 2011-12 compared to 9.57% in 2010-11.

"While RBI kept the repo rate unchanged at 8%, it noted that inflationary pressures are persistent and face upward pressure from a weaker currency, higher global commodity prices and the still-wide fiscal deficit," said Anubhuti Sahay, economist, Standard Chartered.

"A cut in repo rate looks unlikely in 2012."Price worries, costly diesel force central bank to abstain from rate cuts despite faltering growth.