The RBI, which hiked interest rates for the tenth time in 15 months on Thursday, said it will continue with its tight monetary policy as inflation is spreading to the non-food segment also, which is a concern.

"Based on the current and evolving growth and inflation scenario, the Reserve Bank will need to persist with its anti-inflationary stance of monetary policy," the central bank said in its mid-quarter review of credit policy.

"Domestically, inflation persists at uncomfortable levels. Moreover, the headline numbers understate the pressures because fuel prices have yet to reflect global crude prices," it said.

Non-food manufactured products inflation stood at 8.5 per cent in March. It increased from 6.3 per cent in April to 7.3 per cent in May, 2011, much above its medium-term trend of 4 per cent.

"This pattern in non-food manufactured products inflation is a matter of particular concern. Besides reflecting high commodity prices, it also suggests more generalised inflationary pressures (and that) rising wages and costs of service inputs are apparently being passed on by producers along the entire supply chain," the RBI said.

Food inflation, however, declined marginally to 8.96 per cent for the week ended June 4 from 9.01 per cent in the previous week.

Headline inflation, as measured by the wholesale price index (WPI), was 9.7 per cent in March, 8.7 per cent in April and 9.1 per cent in the following month.

The RBI said given the recent pattern, the inflation numbers for April and May are likely to be revised upward.

"Thus, the headline WPI inflation rate remains elevated, consistent with the projections made in the Annual Policy Statement of May 3," it said.

The main drivers of inflation in April-May, 2011, were non-food primary articles, fuel and non-food manufactured products.

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Home, auto loans set to become costlier

Be prepared to pay more every month on your home, auto and other loans, as the Reserve Bank of India on Thursday, for the 10th time since March, 2010, raised key interest rates by 25 basis points in its effort to control spiralling inflation.

The RBI has raised the short-term lending (repo) rate by 25 basis points to 7.50 per cent and the short-term borrowing (reverse repo) rate will move up by a similar margin to 6.5 per cent. It kept other rates and ratios unchanged.

The mid-quarterly policy initiatives, the RBI said, are expected to contain inflation, which is currently over 9 per cent, much above the comfort level of the central bank.

"The RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations," the Finance Ministry said in a statement, adding that this was on expected lines.

"We need to have price stability for sustaining growth in the medium term," it added.

Bankers said the move would put pressure on interest rates and may make loans costlier subsequently.

"It (RBI's move) will put pressure on short-term deposit rates and subsequently on the lending rates. But rate hike by banks would not be immediate," Indian Overseas Bank CMD M Narendra told PTI.

While announcing the measures, the RBI said that tightening of the monetary policy would impact economic growth, which is already under pressure, in the short term.

With the rise in the repo rate, the interest rate for the additional lending facility of the RBI under the marginal standing facility (MSF) has gone up by 25 basis points to 8.5 per cent. This facility was introduced in the annual policy that was unveiled on May 3.

The monetary policy stance, the RBI said, "remains firmly anti-inflationary, recognising that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control."

The economic growth rate in the fourth quarter of the last financial year decelerated to 7.8 per cent from 9.4 per cent in the same period a year ago, raising fears of a slowdown.

Also, industrial production during April, 2011, moderated to 6.3 per cent from over 13 per cent in the same month last year.

The moderation in growth has not deterred the Reserve Bank into taking a pause on its rate hike strategy, as the "challenge of containing inflation and anchoring inflation expectations persists".

"Thus, while the Reserve Bank needs to continue with its anti-inflationary stance, the extent of policy action needs to balance the adverse movement in inflation with recent global developments and their key impact on the domestic growth trajectory," the RBI said.

Pointing out that the inflation is at an uncomfortable level, the RBI said the present wholesale price figures "understate the pressure because (domestic) fuel prices have yet to reflect the global crude oil prices."

Food inflation down marginally, at 8.96 pc

Food inflation went down marginally to 8.96 per cent for the week ended June 4 on the back of cheaper pulses and vegetables.

Food inflation, as measured by the wholesale price index (WPI), stood at 9.01 per cent in the previous week, while it was over 21 per cent in the first week of June last year.

The latest fall, although very marginal, is likely to be seen as a silver lining by the government, which has been battling the high rate of price rise across all segments for the past few months and also had to contend with low economic growth and factory output numbers in recent months.

Headline inflation in the country stood at 9.06 per cent in May.

The Reserve Bank has already hiked its key policy rates 10 times since March, 2010, to tame demand and curb inflation.

The latest hike of 25 basis points in the short-term lending (repo) and borrowing (reverse repo) rates was announced on Thursday.

During the week under review, prices of pulses went down by over 10 per cent year-on-year, while vegetables became cheaper by 1.39 per cent.

However, prices of other food items continued to move upward.

Fruits became almost 30 per cent more expensive, while milk was up 10.59 per cent. Eggs, meat and fish became dearer by 7.31 per cent on an annual basis.

The prices of onions went up by 12.17 per cent and potatoes by 1.14 per cent. Cereals were also up by 5.25 per cent.