India's food inflation raced towards double-digit levels - it was 9.13% for the week-ended September 17 - fuelled by high prices of staple items such as potatoes and pulses, prompting finance minister Pranab Mukherjee to describe the situation as grave. "It (food inflation) is perilously close to double digits. These fluctuations are taking place and it is one of the areas of grave concern."The government and the Reserve Bank of India, is facing a serious dilemma.
The string of measures to snuff out inflation have hurt growth, raising the risk of an economic slowdown.
The Reserve Bank of India is manoeuvring between keeping the growth rate going and reining in runaway prices.
A fortnight ago, the RBI raised the repo rate - the rate at which banks borrow from the RBI by 0.25 percentage points to 8.25%. A higher repo would raise banks' borrowing costs, which in turn would raise interest rate on final home, auto and corporate loans.
Raising interest rates still remains the most potent tool with the RBI to tame prices, but it has hurt industrial growth.
{{/usCountry}}Raising interest rates still remains the most potent tool with the RBI to tame prices, but it has hurt industrial growth.
{{/usCountry}}Economists said it was unlikely that the central bank will start slashing rates anytime soon.
"Market expectations for aggressive policy easing look misplaced," said Mole Hau of BNP Paribas.
"I believe even if inflation is triggered by supply side constraint monetary policy has important role to play," said C Rangarajan, chairman, Prime Minister's Economic Advisory Council.