Mumbai, July 28 - As parliament was witnessing some angry protests over rising food prices Tuesday, India's central bank cautioned that inflation rate can soon balloon to 5 percent, terming the current negative rate a 'statistical' effect. It, accordingly, kept key rates unchanged in the quarterly update of its monetary policy for this fiscal.

'The immediate challenge for the central bank is to manage a balance between short-term compulsions of providing ample liquidity and potential build-up of inflationary pressure the way forward,' Reserve Bank of India Governor D. Subbarao said in the policy update.

This, he said, was the reason why he was leaving unchanged key policy rates like bank rate, repo rate and reserve repo rate, while keeping a close watch on the money supply, with a status quo on cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

'It is worth reiterating that the Reserve Bank will maintain an accommodative monetary stance until there are definite and robust signs of recovery,' Subbarao said, while predicting an economic growth of at least 6 percent this fiscal, with an upward bias.

Subbarao, nevertheless, said there was still scope for commercial banks to cut their interest rates so that industry and households can borrow funds at lower rates.

In the policy unveiled by the central bank governor April 21, both the repo and the reverse repo rates were cut by 25 points each, even as CRR and SLR were left unchanged at 5 percent and 24 percent, respectively.

The repo rate, currently at 4.75 percent, is the interest charged by the Reserve Bank on borrowings by the commercial banks. A reduction in the same lowers the cost of borrowings for commercial banks.

The reverse repo rate, currently at 3.25 percent, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate makes it less lucrative for banks to park funds with the central bank.