Thursday, April 28, 2005

Reserve Bank of India fights wholesale price index inflation

by Brian Turner

The Reserve Bank of India (RBI), India’s central bank, left bank rates unchanged at 6 percent on Thursday, but it raised the repo rate, the interest rate paid by banks on short-term funds overnight, by 25 basis points to 5 percent.

Analysts believe that if India’s inflation rate passes above 6 percent, however, that the RBI might be forced to raise the benchmark interest rate. They expect that the bank rate will rise by 50 to 75 basis points by the end of the year.

The RBI reported that they believed inflation would remain stable at between 5 percent and 5.5 percent in the year ahead. However, the wholesale price index has again begun to climb again and is currently at 5.48 percent. This index is India’s main inflation index.

Analysts have said that the RBI has three ways to reach price stability and maintain a steady inflation rate. They can tighten monetary policy, they can intervene in currency markets to strengthen the rupee effectively making oil imports cheaper, or they can lobby the government to lower duties.

 

 

 

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