Amid expectations that RBI will hike policy rates later this month to tame high inflation, Finance Minister Pranab Mukherjee on Friday said the central bank will take appropriate monetary action to stabilise prices.

“Whenever the appropriate adjustment of the crucial rates is called for in the larger interest of the economy, including the price stabilistion, the RBI takes appropriate policy in consultation with the government,” Mukherjee told reporters.

He was addressing a joint a press conference with World Bank Group President Robert Zoellick in New Delhi.

Mukherjee said the Reserve Bank of India (RBI) always keeps the economic situation under review.

The RBI is widely expected to raise short-term lending and borrowing rates -repo and reverse repo in its policy review on 25th January to tame inflation, particularly food inflation.

Expensive food items pushed overall inflation to 8.43 per cent in December, but experts say the rate of price rise will come down now since the country has seen the peak of food prices.

On inflation in India, Zoeillic said it is mainly due to supply side constraints.

“My own sense in the case of the Indian economy is that some of the inflationary pressures are more likely a function of some of the bottleneck on the supply side than they are from the demand side,” he said.

Mukherjee would have pre-Budget interactions with state counterparts on Wednesday, where the issue of inflation would also be discussed.

He has also written letters to states asking them to remove supply bottlenecks in food products.

RBI raised short term rates six times last year to check inflation before pressing a pause button in December.