Mumbai, Jan. 28: The Reserve Bank of India (RBI) today warned of price pressures and saw moderation in growth, keeping analysts guessing about its stand on interest rates in tomorrow’s credit policy.

In its review of the economy and monetary policies during the third quarter of 2007-08, the RBI said an incomplete pass-through of higher international oil prices and elevated food prices posed an inflation threat. Pass-through is the extent to which global prices get reflected locally.

A section of the market feels the RBI’s apprehensions on inflation indicate its unwillingness to touch interest rates during the third-quarter review of its 2007-08 monetary policy tomorrow.

Though inflation stood at 3.8 per cent as on January 5, the RBI said that since the pass-through of higher international oil prices remained incomplete, inflation was suppressed. This indicated a higher inflation, if there was a hike in the prices of domestic petroleum products. In its references to higher global oil prices, the central bank referred to the Texas light sweet variety of crude, which rose sharply during the third quarter.

The RBI has been raising key monetary policy instruments since mid-2004 to keep a tight leash on inflation. According to the central bank, these monetary measures coupled with the central government’s fiscal policies and supply-side manoeuvres have helped in checking inflation and inflationary expectations.

It’s not only crude oil prices and their incomplete pass-through in India that worry the RBI. Global food prices, too, are likely to remain firm given the prospects for various crops and their lower levels of year-end stocks. In India, while the sown area of kharif crops, up to October 26, 2007, increased 2.7 per cent, that of rabi crops, up to January 18, was about 3.7 per cent lower than a year ago.

This apart, the growth rate of broad money, as on January 4, at 22.4 per cent was above the indicative trajectory of 17-17.5 per cent set out in the RBI’s annual policy document.

If these trends buttress arguments for status-quo in rates, some other aspects of the economy in the RBI’s analysis support the rate-cut view.

According to the review, growth of the Indian economy has moderated. In manufacturing and services, growth in the first half is lower than that of the corresponding period of the previous year.

Growth in bank credit has also moderated after moving at a fast clip in the preceding three years. In non-food credit of banks, the growth rate was 22.2 per cent as on January 4, 2008, against 31.9 per cent a year ago.

Further, despite continued strength in domestic fundamentals, business confidence indices compiled by various agencies indicate some softening of sentiment against the backdrop of elevated international crude oil prices and global uncertainties.

On the sub-prime crisis in the global financial markets, the report said the presence of many intermediaries had made it difficult to identify and locate risks in the whole chain.

The balance of payment position continued to remain comfortable, the review said.

The merchandise trade deficit widened to $42.4 billion in April-September from $33.8 billion.