Canberra: Monetary tightening is set to continue in emerging economies, with inflationary concerns becoming more important, India’s central bank governor Duvvuri Subbarao said on Thursday, after giving a speech at an Australian university in Canberra.
“I would see continuing of monetary tightening across emerging economies,” said Subbarao, when asked about monetary policy settings in Asia.
He noted that the International Monetary Fund has said growth in emerging economies was in line with earlier forecasts, but that inflationary concerns have become more important.
“We’ve (India) been experiencing inflationary pressures for the past two years,” he said.
The Reserve Bank of India (RBI) last week lifted official interest rates for the 10th time in just over a year to help curb stubbornly high inflation as growth slows in Asia’s third-largest economy.
The repo rate was raised by 25 basis points to 7.5%. Wholesale inflation in India stands at 9%, roughly double the central bank’s comfort level.
Economists expect the RBI to lift rates by a further 50 basis points in 2011, with the tightening cycle seen to be nearing its peak.
Rising rates and slowing growth add to the headaches for Prime Minister Manmohan Singh, whose embattled government is buffeted by criticism over inflation, a spate of corruption scandals and its inability to push through reforms.
India’s annual economic growth in January-March slipped to a lower-than-expected 7.8%, the slowest pace in five quarters, as the rise in credit costs and inflation weighed on consumption and investment.