Mumbai : Signaling interest rate cut to boost economy at its annual credit policy on Tuesday, the Reserve Bank said it would shift the focus to arresting declining growth while keeping inflation under control.

“Inflation expectations moderated in the fourth quarter of 2012-13 but remain high.

With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum,” RBI said on the eve of annual monetary policy.

RBI in its Macroeconomic and Monetary Development Report also cautioned that inflation is likely to remain “sticky” at the current level through out the fiscal (2012-13).

Finance Minister Pranab Mukherjee too described the rising food inflation as “disturbing”.

The inflation, according to latest data, was 6.89 per cent during March. As regards growth, it declined to three year low of 6.9 per cent during 2011-12.

“Monetary policy needs to support growth without risking external balance or inflation by excessive fueling demand,” it said.

So far RBI’s stance was checking inflation and it raised interest rates 13 times since March 2010 which impacted industrial output due to costly credit.

During April-February period 2011-12, the IIP fell to 3.5 per cent, as against 8.1 per cent in same period in 2010-11. Therefore, it is widely expected that the central bank would cut interest rate in the annual policy to be announced on Tuesday.

The Reserve Bank, in its review in March gave indications of peaking of the interest rates cycle in line with the evolving growth inflation dynamics.