India’s Central Bank, Reserve Bank of India may raise its interest rate for the fourth time in a year as record economic growth stokes inflation.
Governor Y. V. Reddy expected to increase the reverse repurchase rate to a five-year high of 6.25 percent. The repurchase rate is used to influence the cost of lending money to business and consumers. By increasing this rate, the central bank is trying to increase the cost of loans for housing and retail, the fastest lending areas, to avoid the risk of a sudden collapse in record property and share prices.
India’s Finance Minister P. Chidambaram expects the economy to swell to a record 9 percent this year and most of the companies have increased capacity to meet rising consumer demand.
Country’s wholesale price inflation rate has increased to its two-year high of 6.12 percent. The price index of manufacturing products is at the highest since mid of 2005 as growth in loans and salaries have stimulated the demand for cars, which is estimated to increase by five times within 10 year, and other goods.
The yield on the standard 8.07 percent note due January 2007 rose 2 basis points, or 0.02 percentage point, to 7.91 percent as of 10:15 a.m. in Mumbai.
Wanda Tseng, deputy director of the Asia and Pacific Department at the International Monetary Fund said
The Reserve Bank of India has gradually removed monetary accommodation and continuing this stance would help limit the risk of an inflation overshoot
