The Reserve Bank of India said it expects inflation to remain near current elevated levels for the remainder of the fiscal year that ends in March, a day before it is forecast to raise its policy interest rate for the second consecutive review.
The central bank is widely expected to increase the repo rate by 25 basis points on Tuesday to 7.75 per cent to fight inflation even as it continues to unwind its rupee defense steps, a Reuters poll showed.
In its quarterly macroeconomic review on Monday, the RBI said it expects a "modest improvement" in growth in the second half of the fiscal year. Asia's third-largest economy grew at 4.4 per cent in the three-months to June, the slowest in four years.
"Both WPI (wholesale price index) and CPI (consumer price index) inflation may stay range-bound around the current levels that remain above comfort levels," it said in its report.
India's headline wholesale price index inflation rose to a seven-month high 6.46 per cent in September, driven by food prices such as a 322 per cent jump in the cost of onions, while consumer inflation quickened to 9.84 per cent.
In its report, the RBI noted that a drop in food inflation is required to bring down broader consumer price inflation.
"However, pending sufficient supply responses, it is important that monetary policy keeps a tight leash to prevent relative price shocks in the current year from getting generalised," it said.