New Delhi: Interest rates are unlikely to rise in the short term despite inflation being “still too high for comfort,” Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said on Wednesday.
The Reserve bank of India (RBI) has raised benchmark rates twice since March by a total of 50 basis points and has flagged more increases to control headline inflation which is close to 10%.
“I am sure the interest rates will not rise, if you are referring to the adjustments of the short-term rates like the repo rate by the RBI,” he said.
The repo rate is the rate at which the RBI lends to banks.
Several central banks in Asia, including those in Malaysia, Singapore and China, have started tightening monetary policy as the region recovers from the global downturn faster than the rest of the world. However, inflation has taken off in India more than elsewhere.
Much of the country’s inflationary pressures were initially on the supply-side as a result of the 2009 monsoon failure that pushed up food prices.
But RBI governor Duvvuri Subbarao said on Monday rising prices for food, fuel and wages are making inflation a generalised and demand-side problem.
“I am concerned that it (inflation) is too high for comfort right now,” Ahluwalia said, adding he expected food prices to ease in the next two to three months.
“We have ample stocks. We have good harvest coming in. So I expect inflation psychology will be broken.”
Last week, the central bank raised its key interest rates by 25 basis points to 5.25% and 3.75% respectively. It also increased bank reserve requirements to 6% from 5.75%.
A Reuters poll conducted after last week’s policy review found a small majority of economists expected another increase in rates by end-June, which would be before the RBI’s next scheduled quarterly review in July.