India raises interest rates, signals end of monetary tightening period
NEW DELHI - India raised interest rates for a 13th time since the start of 2010 and signaled it's nearing the end of its record cycle of increases as the economy cools. Bonds rallied the most this year.
"The likelihood of a rate action in the December mid-quarter review is relatively low," the Reserve Bank of India said in a statement in Mumbai on Tuesday after it boosted the repurchase rate to 8.5 percent from 8.25 percent.
Governor Duvvuri Subbarao may hold off on further monetary tightening after Brazil and Russia lowered borrowing costs in recent weeks and China kept rates unchanged since July amid Europe's debt crisis and a faltering US recovery.
The Reserve Bank on Tuesday cut India's growth estimate to 7.6 percent from 8 percent for the current fiscal year and reiterated inflation would slow to 7 percent by March 31.
"The damage that rate increases are starting to inflict on the economy is getting larger," said Sanjay Mathur, Singapore-based head of research and strategy for non-Japan Asia at Royal Bank of Scotland Group PLC. "It's now time to assess the impact of the previous rate hikes on the economy and that's a very appropriate stance."
The Reserve Bank also decided to deregulate the savings bank deposit rate, granting lenders the ability to set their own interest rates on deposits with immediate effect.
"Growth is showing clear signs of slowing and the global turmoil is becoming a risk," Rupa Rege Nitsure, a Mumbai-based economist at the state-owned Bank of Baroda, said before the decision. "The policy objective can't be to kill growth with too much tightening while trying to tame inflation."
Subbarao has increased the central bank's benchmark rate by 375 basis points since mid-March 2010. That's curbing consumer demand.
Manufacturing in India grew in September at the slowest pace in 2 1/2 years, according to the purchasing managers' index released by HSBC Holdings PLC and Markit Economics.
India's benchmark wholesale-price inflation was 9.72 percent in September, staying above 9 percent since the start of December. By comparison, consumer prices rose 7.3 percent in Brazil, 6.1 percent in China and 7.2 percent in Russia.
Inflation will start to fall from December and ease to 7 percent by March before moderating further in the first half of the new fiscal year starting April 1, the central bank said on Tuesday.
Beyond December, "if the inflation trajectory conforms to projections, further rate hikes may not be warranted", the bank said.
Bloomberg News
(China Daily 10/26/2011 page16)
