India surprises with rate rise
Source: Bloomberg News |
July 27, 2011, Wednesday
|
Print Edition
Print Edition
INDIA'S central bank raised its benchmark interest rate more than forecast to quell the fastest inflation among major economies, spurring a slide in stocks and gain in the rupee.
The Reserve Bank of India lifted the repurchase rate to 8 percent from 7.5 percent, it said in a statement in Mumbai yesterday. None of the 22 economists surveyed by Bloomberg news predicted the decision. Twenty estimated a quarter-point rise, while the rest saw no change.
Governor Duvvuri Subbarao acted as the central bank elevated its inflation forecast for the year through March by 1 percentage point, to 7 percent. With rising rural wages and a lack of corporate investment growth straining capacity, India's price pressures mean it lacks the leeway in setting monetary policy afforded to counterparts in South Korea, Malaysia and Indonesia, which kept borrowing costs flat this month.
"Today's statement makes it clear that the RBI intends to take more monetary measures to get a handle over headline inflation," said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd in Singapore, who boosted her forecast for the repurchase rate to 8.5 percent for the end of December from 8 percent before yesterday. "Inflation isn't going to ease soon to allow the central bank to take its eyes off a huge problem."
The RBI's action is a "strong signal" to check prices, Finance Minister Pranab Mukherjee said in New Delhi yesterday.
Policymakers have now raised rates 11 times since the start of last year, and yesterday's was the second half-point move in three meetings.
The Reserve Bank of India lifted the repurchase rate to 8 percent from 7.5 percent, it said in a statement in Mumbai yesterday. None of the 22 economists surveyed by Bloomberg news predicted the decision. Twenty estimated a quarter-point rise, while the rest saw no change.
Governor Duvvuri Subbarao acted as the central bank elevated its inflation forecast for the year through March by 1 percentage point, to 7 percent. With rising rural wages and a lack of corporate investment growth straining capacity, India's price pressures mean it lacks the leeway in setting monetary policy afforded to counterparts in South Korea, Malaysia and Indonesia, which kept borrowing costs flat this month.
"Today's statement makes it clear that the RBI intends to take more monetary measures to get a handle over headline inflation," said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd in Singapore, who boosted her forecast for the repurchase rate to 8.5 percent for the end of December from 8 percent before yesterday. "Inflation isn't going to ease soon to allow the central bank to take its eyes off a huge problem."
The RBI's action is a "strong signal" to check prices, Finance Minister Pranab Mukherjee said in New Delhi yesterday.
Policymakers have now raised rates 11 times since the start of last year, and yesterday's was the second half-point move in three meetings.
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