RBI hints at rate rise1 min read . Updated: 17 Jan 2011, 03:40 PM IST
RBI hints at rate rise
RBI hints at rate rise
Mumbai: Reserve Bank of India (RBI) governor Duvvuri Subbarao said on Monday the country is facing surging inflation and it needs to calibrate monetary policy in order to manage inflation and also support growth.
The RBI will hold its quarterly monetary policy review on 25 January, when it is widely expected to raise rates by at least 25 basis points. The RBI is seen raising rates by a total of 75 basis points in 2011.
“A lot of other countries are still flirting with deflation ... still concerned that they might have deflation. On the other hand we are having a surging inflation," Subbarao told a group of university students.
"For the Reserve Bank the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," he said.
The most-traded 8.08% 2022 bond and second most-traded 8.13% 2022 bond moved up 2 basis points to 8.23% each after the governor’s comments on inflation.
The benchmark five-year swap and the one-year rate rose 5 basis points each to 7.99% and 7.41%, respectively.
Traders said that despite Subbarao’s comments, the market still expects only a 25 basis points increase in key rates at next week’s policy review after a sharp dip in industrial production growth in November.
India’s annual headline inflation accelerated to 8.43% in December on rising food prices. The country’s economy is forecast to grow by at least 8.5% in the fiscal year that ends in March.
"When I meet other central bank governors they tell me: ’why don’t you give us a bit of your inflation.’ That’s how desperately they want some inflation and how desperate we are to control our own inflation," Subbarao said.
India’s annual industrial output in November grew at its slowest in 18-month, but the central bank is likely to stay on course and raise interest rates later this month to combat inflation.
India’s chief statistician, T.C.A. Anant, said at the same event on Monday that the government is not particularly happy with the pace of revival in the manufacturing sector.
"The revival has not kept pace at least in manufacturing," he said.
"The growth is there but it is not so strong that we would be happy with. That is really the concern," he told reporters.