Concerned over continuing upward spiral in global oil prices, Reserve Bank of India on Tuesday warned that the inflation risk remained high and will persist well into 2006.
The consequent rise in domestic prices of LPG and kerosene could push up inflation in 2006-07, the central bank stated in the third quarter review of the Monetary Policy.
The Monetary and Credit Policy 2005-2006
However, it retained inflation projection at 5-5.5 per cent.
It also indicated a pick up in aggregate demand getting stronger with some manageable spill over into the external sector in the form of widening trade and current account deficits.
"It is important to respond in a timely and even pre-emptive manner to these developments to ensure that generalised inflation spirals do not develop in an environment of higher than anticipated expansion in money supply and bank credit with large shifts in liquidity.