Mumbai: India’s central bank hinted in a report Monday that it would further raise interest rates this week as inflation remains high.
The Reserve Bank of India (RBI), which holds its monetary policy meeting in Mumbai on Tuesday, said in its macroeconomic report on the eve of the decision that inflation remains “above comfort levels”.
Annual inflation in September jumped to a seven-month-high of 6.46 per cent, led by surging food and fuel prices.
“Various surveys, including those by the RBI, show that business confidence remains weak, while inflation expectations have risen again,” the central bank report said.
“The monetary policy will need to aim at anchoring inflation expectations, while appropriately addressing growth risks,” it added.
The report supports the widely held expectations of economists that the RBI will raise interest rates on Tuesday, in what would be its second rise in two months.
The RBI said it expects “a modest improvement in growth” in the second half of the fiscal year to March 2013 “on the back of a good monsoon and some improvements in industrial growth”.
The economy grew by 4.4 per cent year-on-year in the April to June quarter, the slowest quarterly expansion in four years.
Last month new central bank governor Raghuram Rajan - who had warned he was prepared to take unpopular steps to bring the economy back on track - surprised markets by increasing interest rates to help control inflation.
Wholesale inflation has been above the RBI’s comfort zone of 5.0 per cent for four successive months.
But business leaders have long been seeking a cut in rates to help revive sluggish domestic growth.
“RBI’s primary objective is to guard against a build-up of inflationary pressures and rein in inflation expectations,” said Sonal Varma, economist at brokerage Nomura, predicting a 25 basis points rise to 7.75 per cent on Tuesday in a “hawkish” policy.
The scandal-tainted Congress-led government of Prime Minister Manmohan Singh is anxious to tame inflation and revive the economy as it seeks a third term in office, with elections due by May 2014.
