Growth-inflation trade-off a challenge: RBI

MUMBAI: The economic outlook is a mix of recovery prospects and downside risks, and managing the trade-off between supporting growth and reining

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in inflation poses a complex policy challenge, the Reserve Bank of India (RBI) said on Monday.

The combination of weak recovery and elevated consumer price inflation has magnified the complexity of policy challenges despite low headline wholesale price index numbers.

"The overall economic outlook, thus, is conditioned by both upside prospects of recovery with downside risks and emerging inflationary pressures," the Reserve Bank of India said in its review of the second quarter for 2009/10 (April/March).

The RBI is expected to hold interest rates steady when it reviews monetary policy on Tuesday.

It said anchoring inflation expectations in the face of sustained high inflation in essential commodities would be a key challenge and cautioned that weak private consumption and investment demand continued to be a drag on faster recovery.

The RBI said delayed withdrawal of the annual monsoon augured well for winter wheat and oilseeds crops due to high moisture retention in the soil, but this year's deficient summer monsoon could hinder faster recovery.

India's headline inflation rose at a faster-than-expected pace in the year through mid-October to its highest level in 20 weeks, but government officials and analysts expect the RBI to maintain its focus on stimulating growth and leave rates unchanged at its policy review on Tuesday.

The widely watched wholesale price index rose by 1.21 percent in the 12 months to Oct 10, its highest level since May 23 when it was 1.34 percent.