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Inflation to prompt more RBI rate hikes in 2011
Published on 24 Jan. 2011 12:32 AM IST
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India’s uncomfortably high inflation will subside only gradually in the coming quarters as the economy continues to race ahead, likely prompting the Reserve Bank to hike interest rates more aggressively than earlier thought, a Reuters’ poll showed.
The wholesale price index (WPI), India’s main inflation gauge, is expected to rise by an average 8.8 percent for the fiscal year ending March 2011 before easing to 6.4 percent in the following yea, stated Zee newsr.
This is considerably higher than 8.3 and 5.7 percent forecast in the October survey.
Driven by costlier food items, wholesale price inflation soared to an annual 8.43 percent in December, compared with an expected 8.35 percent and above the previous reading of 7.48 percent.
Many economists now believe the Reserve Bank of India (RBI) will be forced to undertake much swifter policy tightening than was previously foreseen.
“The unexpected rise in December inflation ... turned out to be a game-changer, and is likely (to) push the central bank to front-load another rate hike in January, despite the source of pick-up coming largely from volatile food articles,” said Siddhartha Sanyal, chief economist at Barclays Capital in a note.
Price growth would remain above the RBI’s comfort levels, according to the latest poll, averaging 7.7 percent in the quarter ending March before easing to 5.5 percent in the second half of 2012 -- a level the central bank had hoped to reach by March this year.
The poll predicts the Reserve Bank will increase rates from 6.25 percent now to 7.0 percent by end-September this year, a quarter earlier than was predicted in a Jan 5 survey, before the latest inflation numbers were released.
From there, forecasters expect the RBI to increase rates slowly to 7.50 percent by the end of next year.
The RBI, seen as Asia’s most aggressive major central bank after it increased rates six consecutive times last year, is set to raise rates by at least 25 basis points in its Jan 25 policy meeting, with some analysts even predicting a substantial 50 bps hike.

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