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India cbank: inflation beyond tolerable levels

Reuters - Saturday, August 30

MUMBAI, Aug 29 - India's monetary policy will continue to address strong demand pressures as inflation rates have hardened beyond tolerable levels, the central bank said in its annual report for 2007/08, which was released on Friday.

There were several risks to growth prospects of Asia's third largest economy in the short term, stemming from both global and local factors, the central bank said in its review of the year ending June 30, 2008.

"As the inflation rates have hardened beyond tolerable levels, monetary policy would continue to address aggregate demand pressures, which appear to be strongly in evidence," the report said.

The central bank also said it had to ensure the effectiveness of monetary policy was not diluted by fiscal expansion.

The central bank has raised its main lending rate three times since early June to a seven-year high of 9.0 percent, and it has also raised banks' reserve requirements to rein in double-digit inflation.

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