Mumbai, June 16: The Reserve Bank of India (RBI) has been trying to perform a delicate balancing act by winching up interest rates to tamp down on inflation without nixing economic growth – but there are worrying signs that the strategy may not be working very well.

Data reveals that annual economic growth in January-March this year has slowed to 7.8 per cent – the slowest pace in five quarters. In April, the growth in industrial output also slowed to 4.4 per cent year on year from 7.78 per cent in the previous month. The growth in car sales — a popular measure of economic momentum — have already started to sputter in May, dipping to its slowest pace in two years. However, the RBI did not sound worried about growth and said it would stick to its 8 per cent GDP forecast for this fiscal which ends next March.

“Domestically, inflation persists at uncomfortable levels,” the RBI said. “Moreover, the headline numbers understate the pressures because fuel prices have yet to reflect global crude oil prices.”

Inflation could exacerbate next month if the government bites the bullet and raises prices of diesel and cooking gas to ease the cost of subsidies that’s putting a strain on its finances.

The monsoon remains one of the key factors that will determine the fate of India’s economy, which is expected to grow faster than China where the forecast has been trimmed to 7.5 per cent.

“The progress of the southwest monsoon has so far been satisfactory, which augurs well for agricultural production,” the central bank said in its mid-quarter credit policy review. Agriculture secretary P.K. Basu recently said the country was likely to harvest a record 102 million tonnes of rice in the 2011-12 crop year (July-June).