Enthused by the high 8.4 per cent growth in the second quarter, the Reserve Bank of India on Wednesday revised upwards the economic growth for 2003-04 at 7 per cent.

Announcing this, RBI Governor Y V Reddy told the Federation of Indian Chambers of Commerce and Industry's annual general meeting that "our latest assessment is that the growth rate this fiscal will be around seven per cent with an upward bias."

RBI had projected 6 per cent growth in April and this was revised to 6.5-7 per cent for 2003-04 in the busy season credit policy in November last. Now it has been revised to 7 per cent on the back of record 8.4 per cent in the second quarter this fiscal.

On the surging inflation, now at over 5.6 per cent, Reddy said this was unexpected and the magnitude of price rise was higher than "original expectations."

But RBI did not anticipate any adverse impact of the rise in inflation rate, he said.

Reddy said the measures taken in the November Monetary and Credit policy would continue till the next policy in April if there were no unforeseen circumstances.

He said RBI would continue to "closely monitor the price developments" leaving no room for complacency on the inflation trend.

Asserting that overall developments in the economy were favourable and provide "the main springs" for a revival of investment by industry, he said the forex reserves were at a more comfortable level than ever before and there was adequate liquidity in the system.

"These gains can, however, consolidate with further progress in regard to credit delivery and credit pricing and moreover, investment activity both in the public and private sectors has to pick up to enable sustained acceleration in growth," Reddy said.

Though impressed by the increased credit off-take in the priority sector, Reddy said there was scope for further improvement with regard to credit pricing and credit delivery.

"Efforts by RBI with close cooperation from banks would have to be intensified," he said.

Asserting that the Indian forex market continued to witness orderly conditions in recent months, Reddy said there were, however, merging pressures on the distribution of the burden on adjustment, mainly between the United States, Euro areas and Asia, especially Japan and China.

"Under these circumstances, there appears to be considerable merit in continuing with our policy of exchange rate management of the rupee addressing essentially the volatility issues without a fixed target," he said.