The Reserve bank of India (RBI) recently said high inflation warrants continued tight monetary policy, despite increasing growth risks and thereby reinforced expectations that RBI will increase interest rates by a quarter-point at its policy review on Tuesday.
The Reserve bank of India has raised interest rates 10 times since March 2010, but headline inflation remains above 9 percent.
From in.finance.yahoo.com:
The Reserve Bank said some moderation in investment and consumption demand is likely, as inflation eats into purchasing power and tighter monetary policy curbs demand.
“The downside risks to growth emerge from uncertainties relating to Southwest monsoon, likely moderation in private consumption and investment demand, high input costs, escalating cost of capital and uncertain global outlook,” the RBI said.
India’s economy, Asia’s third-largest, grew at a slower-than-expected 7.8 percent in the quarter that ended in March. For the full fiscal year it grew 8.5 percent, and the central bank said growth of around 8 percent was likely for the current fiscal year.
“The emerging growth risks are likely to be factored in the policy reaction,” the central bank said.
The RBI warned of near-term upside risks to inflation, and said even near-normal summer monsoon rains may not ease food prices because of a rise in government-set minimum food prices.
“Persisting high inflation and its expected slow decline warrant that the Reserve Bank continue with its anti-inflationary policy stance,” RBI wrote in its quarterly report on macroeconomic and monetary developments.











