Hinting that it may hike key-rates further to control the high inflation, Reserve Bank on Thursday said the immediate challenge for the economy is to restore sustainable growth momentum and ensure price stability.

“The immediate challenge for the Indian economy and the financial sector is to reclaim the pre-crisis configuration with minimal efficiency loss...containing overall inflation has become imperative,” RBI Deputy Governor, Shyamala Gopinath told reporters here briefing the apex bank’s first Financial Stability Report.

Gopinath reiterated that primary objective of the monetary policy continues to be ensuring price stability in the system but warned that inflationary pressures, which has already ‘intensified beyond the RBI baseline projections’ could escalate further.

“Inflationary pressures could be further exacerbated on account of increasing capacity utilisation and rising commodity and energy prices...taken together, these factors heighten the risks of supply-side pressures translating into a generalised inflationary process,” Gopinath said, quoting the report.

Food inflation eased marginally to 16.22 per cent for the week ended March 13 from 16.30 per cent in the preceding week despite a rise in the prices of certain items such as pulses and vegetables. Wholesale price inflation is currently hovering around 10 per cent.

The RBI had first mentioned about the periodic Financial Stability Report (FSR) with a view to enhance transparency and augment confidence in the financial system.

In the face of the rising inflationary pressures, the RBI had hiked its repo, reverse repo rates (short term lending and borrowing rates to banks) to 5 per cent and 3.5 per cent respectively last week.

The RBI started the process of exit from its accommodative stance began in January, when it hiked CRR by 0.75 per cent to 5.75 per cent.

Yesterday, RBI Governor D. Subbarao had said that the apex bank would continue its exit from the monetary stimulus to check high-inflation and ensure sustainable economic growth.

The Reserve Bank, in its report, also said that the inbound capital flows, though with the absorptive level of the economy at present, could pose challenges in the future if there is surge in the level.

“If the trend changes significantly and the expectation of a surge in inflows materialises in the coming months, it could pose considerable challenge for management of the capital account,” RBI said.

However, any actions to curtail the capital flows have to be “carefully calibrated taking into account the evolving state of the economy and financial stability considerations,” the central bank said.

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