Indian central bank may not hike interest rates before July policy meeting, analysis

08:33, June 18, 2010      

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Indian central bank, Reserve Bank of Indian (RBI), may not crank up key interest rates ahead of designed policy review meeting by the end of July, despite worrisome double-digit headline inflation.

RBI's deputy governor K. C. Chakrabarty said Thursday that current inflation number is not a surprise to the monetary regulator and is not out of estimates.

Speaking at the sideline of a financial meeting in Mumbai, K. C. Chakrabarty didn't say RBI will readjust monetary policies again at which conjuncture but admitting "inflation is definitely a cause of worry."

He told Xinhua that RBI won't rethink of the policy to exit loose monetary policy on European debt crisis and now is just in the process while refraining from assessing current monetary is loose or not.

Still, industry watchers even expect RBI to announce hike of interest rates as early as Friday, following 10.16 percent jump of wholesale price index unveiled Monday.

India also reported earlier 17.6 percent of industrial output growth in May, which is very close to record high of 17.7 percent in December 2009.

Nevertheless, RBI may choose not to unfold surprise monetary policy adjustments due to concerns on relatively tight liquidity in the market and upcoming G20 conference.

Now, the liquidity in banking system is tight thanks to sales of G3 and broadband spectrum with bidder winners borrowing large part of money from banks, said an official with Punjab National Bank at the meeting.

The official told Xinhua that it will take 15 to 20 days for the money to go back to banking system thus restoring sufficient liquidity and the borrowing activities mainly happen in this week and the coming week.

K. C. Chakrabarty told reporters that liquidity now is definitely a concern indicating governmental officials are looking into the newly announced figures and mulling on what action to take.

India government has bagged around 20 billion U.S. dollars via the recent auction of 3G and broadband telecom spectrum, with bidder winners opting to borrow most of the money from banks to pay the government.

Additionally, RBI may also choose to figure in the implication of possible agreements and consensus from G20 meeting in the end of June.

C. Rangarajan, chairman of Economic Advisory Council to the Prime Minister, Thursday said that the inflation is at very uncomfortable level and major concern for monetary policy is on domestic issues.

Accordingly, Indian central bank may need more time to put forward new policy moves in conjunction with the Ministry of Finance.

RBI has nudged up key interest rates by 25 basis points on Friday to curb inflation expectations, one month ahead of its quarterly policy meeting in April.

Source:Xinhua

(Editor:黄蓓蓓)

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