Stage appears set for another rate hike by India’s central bank

July 26th, 2011 - 10:52 am ICT by IANS  

Mumbai, July 26 (IANS) With headline inflation still above the comfort zone, the Indian central bank appeared set to announce another rate hike at 11 a.m. Tuesday, the 11th since January last year, in a bid to cool prices.

Reserve Bank of India (RBI) Governor D. Subbarao is again to announce the rate hikes when he conducts the first quarterly review of the monetary policy for this fiscal at his Mint Road headquarters here.

An indication came from the review of the macroeconomic and monetary developments for the first quarter Monday, in which the apex bank said inflationary pressures will remain in the short term due to high wage costs and support prices, despite near-normal monsoon.

“Near-term upside risks to inflation remain significant. Price pressures are expected to persist through Quarter-Two as well and then moderate towards the later part of 2011-12,” the RBI said.

“These trends necessitate structural reforms to enhance supply response, while the anti-inflationary bias of monetary policy anchors inflation expectations.”

If the central bank hikes rates again, this would be the 11th such exercise since last January and could result in commercial banks passing on the increase to its customers, making loans to individuals as well as companies that much costlier.

At the moment, the bank rate stands at 6 percent and the repurchase rate at 7.5 percent, by which the reverse repurchase rate automatically gets adjusted at 6.5 percent — 100 basis points below the short-term lending rate.

The reserve ratios — which call for the quantum of money against deposits banks have to keep as liquid assets — stand at 6 percent in the case of cash reserve ratio and 24 percent in the case of statutory liquidity ratio.

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