The Reserve Bank of India on Monday said inflation is likely to be sticky during 2012-13 despite weak growth outlook.
"Persistence of inflation, even as growth is slowing, has emerged as a major challenge for monetary policy," bank said in the Macroeconomic and Monetary Developments First Quarter Review.
Risks to inflation remain from unsatisfactory monsoon. Going forward, the decline in global commodity prices will provide some relief, but the gains have been partly offset by rupee depreciation, the bank noted.
The central bank said output expansion in 2012-13 is likely to stay below its potential. Newer risks to growth have arisen from slowing global trade, domestic supply constraints, bottlenecks of industrial inputs particularly with regard to coal and electricity and less-than-satisfactory monsoon so far.
According to the 'Survey of Professional Forecasters' conducted by the RBI, the economy will grow 6.5 percent in 2012-13, down from the prior forecast of 7.2 percent.
The bank is widely expected to retain its repo rate at 8.00 percent and the reverse repo at 7.00 percent. The announcement is due on Tuesday.
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