India Increased The Key Policy Rate For The Fourth Time This Year
The Reserve Bank of India raised the key repurchase rate by 25 basis points to 5.75%, from 5.5% previously. The reverse repurchase rate was also raised but by more than expected 50 basis points to 4.5%, from 4% previously. This was the fourth time the central bank increased its key interest rates in a move to contain the surge in inflation that has triggered labour strikes and public protests. India’s inflation, as measured by the wholesale-price index, rebounded to +10.6% yoy in June, after inching up to +10.2% in May and it remained high compared to the peak of 11.0% recorded in March. Prices are rising in India as the recovery in the country’s economic growth, which strengthened to +8.4% yoy in the 1Q from +6.5% in the 4Q, is straining capacities in roads, ports and factories. “Capacity constraints are visible in several sectors and pricing power is returning to producers,” according to the central bank. Indeed, the Government’s move to raise fuel prices on 25 June could worsen the situation. Workers, on the other hand, are demanding higher wages that would translate into higher pressure on inflation. The Reserve Bank of India is of the view that inflation is now being significantly driven by demand-side factors and it is imperative for it to continue in the direction of normalising its policy instruments to a level consistent with the evolving growth and inflation scenarios. Meanwhile, the central bank said that it plans to announce monetary policy statements every six weeks instead of once a quarter. The next policy meeting will be on 16 September.
Tracking The World Economy...- 28/07/2010
No comments:
Post a Comment