The fuel price rise will have short-term inflationary impact of 0.9%, as per Finance Minister Pranab Mukherjee.

But, however, that will be absorbed in due course.

He exuded optimism that inflationary pressures would commence to moderate by July end.

Meanwhile, Mukherjee said this decision is the privilege of the central bank, which will consider all factors in its July policy review.

This he said to a query whether increase in inflation would prompt the Reserve Bank to raise policy rates.

Inflation touched 10.16 per cent in May from 9.59 per cent in April.

This, however, is on account of increased food prices and expensive manufactured items which include metals.

In the meantime, as inflation is already in double digits, analysts expect the RBI to tighten monetary policy by raising policy rates.

Moreover, others said the RBI may not do so before its quarterly monetary review on July 27.

This is since the system is facing tight cash conditions due to more than Rs 1 lakh crore outgo on 3G and broadband spectrum sale and advance tax payment.

The finance minister, however, said his economic adviser has told him that there will be 0.9 per cent direct impact on inflation.

There will also be cascading effect.

On the other hand, the government had freed petrol from all pricing controls and hiked diesel prices by Rs 2 a litre.

This is in a major decision to bring petroleum products in line with the market rates.

With this decision, petrol will cost up to Rs 3.50 per litre more.