Economy to grow by 6 pc, inflation to rise too: RBI

India's economy will grow by six per cent this fiscal while inflation would rise to around four per cent, the central bank said here on Tuesday while announcing a 25 basis points cut in key rates in its annual economic policy review.

India's economy will grow by six per cent this fiscal while inflation would rise to around four per cent, the central bank said here on Tuesday while announcing a 25 basis points cut in key rates in its annual economic policy review.

"With the assumption of normal monsoon, real GDP growth for 2009-10 is placed at around 6.0 per cent," said Reserve Bank of India Governor D Subbarao. GDP growth for 2008-09 was 7.1 per cent.

The India Meteorological Department in its forecast of south-west monsoon had said last week it expects a normal rainfall at 96 per cent of its long period average for the current year.

The central bank also expects the annual rate of inflation to rise to four per cent from the April 4 figure of 0.18 per cent. It also said inflation would turn negative before it rises again.

"Keeping in view the global trend in commodity prices and domestic demand-supply balance, WPI (wholesale price index) inflation is projected at around 4.0 percent by end-March 2010," the policy review added.

"WPI inflation, however, is expected to be in the negative territory in the early part of 2009-10," said RBI.

"This transitory WPI inflation in negative zone may not persist beyond the middle of 2009-10," the statement added.

Consumer price inflation is expected to fall from its present high levels.

Deposits with commercial banks is set to grow by 18 per cent this fiscal, while liquidity is set to increase by 17 per cent.

RBI cut key rates Tuesday by 25 basis points in a move to infuse more liquidity into the system and stimulate lending growth.

The RBI cut the repo rate by 25 basis points from the current five per cent to 4.75 per cent, while the reverse repo rate has been brought down to 3.25 per cent from 3.5 per cent earlier.

The repo rate is the rate at which the RBI borrows from the banks, while the reverse repo rate is the interest rate paid to banks for RBI's borrowings from them.

However, RBI kept the cash reserve ratio (CRR) unchanged at five per cent. CRR is the minimum cash reserve balance banks must maintain against customer deposits.

RBI had last cut key rates March 4.