After the inflation rate moved up to a nine-month high to 5.11%, RBI governor YV Reddy stated that India’s monetary plan has already included the rising food and fuel prices.

According to the data, the annual wholesale price inflation rate touched 5.11% in the week ended March 1, and the prices have gone up by 5.01% during the last week.

It is projected that inflation will go up in the coming weeks. Mr. Reddy had recently expressed his worry over increasing food and energy prices.

The central bank wishes to keep inflation around 5% during the 2007/08 fiscal year ending March 31.

Referring to RBI’s plan review in late January when rates were kept stable, Mr. Reddy said, “We are monitoring and, if you recall, even in the policy we had pointed out the uncertainties. And the policy had recognised that there could be pressures on account of food, on account of oil.”

The RBI’s next policy appraisal is on April 29, but it is able to modify settings between planned reviews.

Mr. Reddy said that the 175 basis point variation among the RBI’s repo and reverse repo rates reflected the improbability in fiscal markets.

"As we go towards less uncertainty, the gap is lesser. And as the uncertainty is greater, then we have to necessarily widen," he said.

The repo rate stood at 7.75%, whereas the reverse repo rate is 6.0%. The margin can be widened by either raising the repo rate or utting the reverse repo rate.

“Yes, to some extent there is uncertainty about the overnight markets. But I think in difficult and uncertain times, it's better the policy introduces uncertainty premium so that the markets are forced to pay up. So, that was a deliberate decision taken and that is serving us reasonably well so far,” he added.

Mr. Reddy also said that RBI had, in its January review, showed that worldwide worries would hang on, that’s why spreading financial troubles were not unanticipated completely.

"By and large, the uncertainties are there and continuing and, as of now, it is not clear when things will get little more normal or little less abnormal," he said.

This week, the U.S. Federal Reserve and other central banks formed a group to channel hundreds of billions of dollars in fresh funds to cash-starved credit markets.

"There is a determination on the part of policy makers to the extent possible to co-operate in ensuring that an early end to the uncertainties,” Reddy said.