Reserve Bank of India (RBI) deputy governor KC Chakrabarty has said that high inflation can be tamed only by increasing interest rates as the central bank has no other policy instrument to check price rise. Chakrabarty?s comments on Friday give a clear signal that another increase in interest rate is round the corner.

Headline inflation continues to be at a high 9.72%, leaving little option for RBI when it comes out with its quarterly monetary policy on October 25.

Speaking to reporters at a Ficci event, Chakrabarty said: ?If inflation goes up, interest rates will go up anywhere in the world… inflation is not high because of interest rates. It is high inflation that has led to an increase in interest rates…I have no other (monetary policy) instrument available with me (to anchor inflationary expectations).?

RBI has hiked rates 12 times since March 2010, but the move has not helped contain the price rise. Even in the second quarter review, the central bank is expected to hike rates. Asked if inflation has peaked, Chakrabarty said, ?This is very difficult to say… I cannot say off-hand what is the path of inflation… whether it is coming down or not.?

Chakrabarty, who was addressing a seminar on ?financial inclusion: partnership between banks, MFIs (micro financing institute) and communities?, said the main problem in financial inclusion was the delivery of products.

?These products are a basic no-frills banking account with overdraft facility, a remittance product for electronic benefit transfer and even a pure saving product,? he said.

Financial exclusion is yet to gather pace. India has around 145 million households, which are not a part of the banking sector. There is one bank branch per 14,000 people in six lakh villages. Only 18% of the total population has a debit card and less than 2% hold a credit card.

Crisil expects another 25 bps increase on 25th

Given that core inflation remains much higher than RBI?s comfort zone of 4.5 to 5%, rating agency Crisil expects a 25 basis points hike in the mid-year monetary policy review on October 25.

If international oil price remains at the current level of around $ 85 per barrel till December, then rupee will have to appreciate to 47.0 per $ to reflect gains from lower oil prices into inflation. Core inflation remained worrisome at 7.6%in September 2011 compared to 7.7 % in the previous month.