Mumbai, January 28:

The Reserve Bank of India is expected to hike short-term rates by 25 basis points to 6.25 per cent in a review this week with inflation near a two-year high, analysts said.

Wholesale inflation — the most closely watched price index — stood at 5.95 per cent for the week ended January 13.

Prices are now well above the annual rise of 5.0 to 5.5 per cent expected by the central bank for the year ended March, and will prompt it to stem the rise in a monetary policy review on January 31, analysts said.

“We expect this trend to continue. The RBI will increase the repo and reverse repo rates by 25 basis points,” said Rajeev Malik, Asia economist with JPMorgan Chase Bank based in Singapore, in reference to the central bank’s key overnight borrowing and lending rates.

India’s economy grew by 9.1 per cent in the fiscal first half ended September, while credit growth has been expanding by over 30 per cent annually, which led the central bank to warn in its last review in October of signs of “overheating.”

In the October review, the RBI raised the repurchase rate by a quarter per centage point, or 25 basis points, to 7.25 per cent and kept its reverse repurchase rate at a four-year high of 6.0 per cent.

But despite government efforts to lower prices by cutting import duties on items like wheat, wholesale food prices have gained more than nine per cent in the past year as farm output fell short of targets.

The rise in food prices has become a sensitive political topic in the country where almost two-thirds of the population live near or below the poverty line of two dollars a day.

This month, Finance Minister P. Chidambaram said the inflation numbers were “a matter of concern” and his ministry was in touch with the Reserve Bank and the agriculture ministry to control the price without damaging the fast pace of growth.

“The government has found that items of daily use by the common man are causing concern,” he told reporters.