RBI on Monday reiterated that monetary policy has to ?continue the calibrated normalisation process? given the increasing risks of generalised inflation, suggesting that the hike in key policy rates, expected when the apex bank meets on Tuesday, will remain restricted to 25 basis points.

Indeed, what might prevent the central bank from moving faster to tighten money supply, are the findings from its survey on industrial outlook survey, conducted by it during April-June based on a sample of 1,092 companies, which suggested at a moderate slowdown in the index, both for the quarter assessed as well as for expectations for the July-September quarter.

While observing that ?GDP growth will be higher than the 8% projected in the April 2010 monetary policy statement as the upside bias has materialised?, RBI added that the acceleration in growth seen so far needed to become ?self-sustaining with durable pick-up in both private consumption and investment demand?. Moreover, uncertainties in the external environment, the central bank cautioned, ?cannot be overlooked?. Under the circumstances, it believed that ?the calibrated approach to normalisation of monetary policy continues to be appropriate?.

The apex bank is clearly concerned that headline inflation has remained in double digits since February and that 2010 food prices, although having moderated, still remain high, as also the fact that the full impact of the revision in administered prices of petroleum products will be reflected largely in the WPI for July. ?Given the risks that high and persistent inflation could pose to the growth momentum as well as to the progress on inclusive growth, timely initiation of monetary policy measures to anchor inflation expectations and contain the inflation persistence has become essential,? RBI observed in its review of the macroeconomic and monetary developments for the June 2010 quarter.

In another reference to growth, the central bank made the point that industrial production continued to show strong double-digit growth in the current year and notwithstanding some moderation in May, the ?downside risks to growth were low?. Nevertheless, RBI asserted that the overall GDP growth in 2010-11 could be expected to accelerate further to get closer to its trend rate given that agricultural output was expected to be better than it was last year and because lead indicators for the services sector suggested continuation of the robust trend. The global economy, the RBI noted, had hit a ?soft patch? in the first quarter of 2010, and its own assessment that global demand may weaken in the second half of 2010.