The Reserve Bank of India will follow a monetary policy attuned to support economic growth while also managing inflation, governor Duvvuri Subbarao said ahead of the central bank's annual monetary policy review due on 25 January.
The central bank is widely expected to rely more on its supervisory mechanism in order to monitor fund flows to unproductive channels.
The RBI, which has already raised its key interest rates by around 50 basis points so far during the financial year, is widely expected to raise rates by a further 25 basis points when it announces its annual monetary policy review later this month.
The RBI governor today said the Indian economy is currently witnessing a surge in inflation and there is a need for adopting a calibrated monetary policy that would manage inflation while also supporting growth.
Addressing a group of university students, Subbarao said while most other countries are fighting deflation, India is facing a surge in inflationary pressures.
"A lot of other countries are still flirting with deflationů. On the other hand, we are having a surging inflation," he said.
"For the Reserve Bank the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," he said.