India Monetary Policy


India: Soaring food prices increase pressure to raise interest rates

January 19, 2011

At its latest meeting on 16 December, the Reserve Bank of India (RBI) left interest rates unchanged in a decision broadly expected by the market. The move represented a temporary pause in the tightening cycle that saw six consecutive interest rate hikes, which pushed the repo rate to the current 6.25%. The next monetary policy meeting is scheduled for 25 January. At that meeting, the RBI is widely expected to raise interest rates, as most recent inflation data showed that food prices soared again in December. That said, Trade Minister Anand Sharma recently stated that rising interest rates may be an ineffective tool for fighting inflation in primary articles, especially vegetables. The Trade Minister suggested a selective restriction on credit to control rising inflation.


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