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Food index surges to 17.7%; rate hike near certain

Food index surges to 17.7%; rate hike near certain
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First Published: Thu, Apr 08 2010. 12 17 PM IST
Updated: Thu, Apr 08 2010. 12 17 PM IST
New Delhi: India’s food prices accelerated for the second straight week in late-March, strengthening expectations of a hike in key policy rates when the central bank reviews its policy on 20 April.
The food price index rose 17.70% in the 12 months to 27 March, higher than an annual rise of 16.35% in the previous week, data showed on Thursday.
The fuel price index rose an annual 12.71%, a tad below the previous week’s reading of 12.75%, while the primary articles index was up 14.50% year-on-year.
The Reserve Bank of India (RBI) unexpectedly raised rates in March by 25 basis points as headline inflation continued to remain above its perceived comfort zone of 5 percent for the fourth straight month.
India’s chief statistician Pronab Sen on Wednesday said the RBI would have to further tighten monetary policy if prices continue to rise.
He has said inflation could cross 10 percent in March, higher than Febuary’s reading of 9.89% and then ease.
A Reuters poll shows analysts expect lending rates to go up by another 100 basis points between now and the end of December.
Traders expect benchmark 10-year federal bond yields, which crossed 8% in March before retreating, to hit an 18-month-high of 8.5% in the coming weeks.
India, the world’s second fastest growing economy, is expected to grow 8.5% in the current fiscal year that began 1 April, and accelerate to 9% in the next.
Analysts said the strong recovery in the exports and industrial output growth during February-March have also pushed manufacturing inflation, adding to the central bank’s likely decision tighten policy.
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First Published: Thu, Apr 08 2010. 12 17 PM IST