Inflation at 9%, RBI sees pressure

The Reserve Bank of India warned of an upward pressure on the inflation front on Tuesday as latest government data raised the spectre of double- digit inflation again. HT reports. Growing, but at what price?

The Reserve Bank of India warned of an upward pressure on the inflation front on Tuesday as latest government data raised the spectre of double- digit inflation again.

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The wholesale price-based inflation was 9.06% in May, up from 8.66% in April.

RBI, due to review policy rates on Thursday, said in its financial stability report (FSR) for June that there are downside risks to GDP growth.

"The uncertainties in global environment with persistently high energy and commodity prices have contributed to a slight moderation in India's growth momentum as well," said the RBI. But Indian financial system continues to remain strong and the banking system remains well capitalised, it said.

"The Indian financial system remains stable in the face of some fragilities being observed in the global macro-financial environment," the report said.

But the report mentioned that increased reliance on market borrowings could affect the banks liquidity position. It also cautioned banks to remain cautious as high inflation rates may hurt their asset quality.

"Changes in interest rate were found to have the most significant (negative) impact on slippage ratio of the banks," it said.

The report has assessed that there are signs of a slowdown in growth during 2011 in most countries. "The sovereign debt crisis in some Euro area countries and the high levels of government debt in some advanced countries remain threats to global stability," it said.