New DelhiIndia's government is in no hurry to push inflation - now hovering near 7 per cent and eight-year highs - back to the central bank's 4 per cent medium-term target, for fear that aggressive rate hikes could hurt economic growth, two sources said.

Surging prices are poised to trigger for the first time a legally mandated central bank report to the government on anti-inflation policy responses, but the sources said the government would be comfortable if the central bank took two years or even longer to get inflation down to 4 per cent.

They added that, after rate rises of 140 basis points over the past four months by the Reserve Bank of India, to 5.4 per cent, inflation was now getting under control and is expected to head back towards the top of its target band at 6 per cent, which could be reached within three to six months.

"We are in no hurry to get inflation to 4 per cent. Growth and inflation have to be balanced," said one of the sources. "New Delhi would be comfortable with inflation coming below 6 per cent in the next three to six months," the source added. "Our inflation is under control, especially after a series of measures from the government and the RBI."

Many other big central banks also worried about inflation have been raising rates aggressively, with the U.S. Fed widely expected to raise rates by at least 75 basis points on Wednesday.

The outlook

Inflation data for September, due on October 12, is nearly certain to keep India's consumer price growth above 6 per cent for a third quarter in a row, triggering the reporting requirement.

For four years, the RBI's monetary policy maintained an accommodative stance with a growth bias, but it changed course in May, just before the release of April's "shocker" retail inflation reading of 7.79 per cent, the highest in eight years, driven by a surge in food prices.

Inflation has remained high since, putting pressure on the central bank to raise interest rates again when the Monetary Policy Committee is next due to meet on September 30.

The government has taken a number of other measures to battle inflation, imposing curbs on rice exports last week after previously restricting exports of wheat and sugar, to cool local prices, while reducing taxes on gasoline and diesel in May.

With economic growth flagging, however, authorities have become worried about steps that would undermine domestic demand.

India's April-June economic growth of 13.5 per cent was lower than the RBI's forecast of 16.2 per cent for the period, threatening the overall growth projection of 7.5 per cent for the full year.

Last week, global ratings agency Fitch cut India's 2022/23 growth forecast to 7 per cent from 7.8 per cent as elevated inflation will lead to tighter monetary conditions.

Fitch said it expects India's monetary policy rates to peak in the near future and remain at 6 per cent through next year.