From: Parthiv Mehta <parthivtmehta@gmail.com>
RBI raised interest rates by a higher-than-expected 50 basis points on
Tuesday, stepping up its fight against persistently high inflation
despite slowing growth in Asia's third-largest economy.
TheReserve Bank of India (RBI) increased therepo rate , at which it
lends to banks, to 8 per cent, exceeding market expectations that it
would raise rates by 25 basis points.
The rate increase is its 11th since March 2010, making the RBI one of
the most aggressive inflation fighters among central banks.
Still, wholesale price index inflation was 9.44 per cent in June, more
than double the central bank's comfort level, and high prices are
expected to persist in coming months.
The central bank, whose forecasts for inflation have proven optimistic
in recent quarters, increased its outlook for wholesale inflation at
the end of the fiscal year in March to 7 per cent, from 6 percent
earlier.
"Considering the overall growth and inflation scenario, there is a
need to persevere with the anti-inflationary stance," RBI Governor
Duvvuri Subbarao wrote in his quarterly policy review.
The RBI stuck with its forecast for economic growth in the current
fiscal year of around 8 per cent. While some interest-rate sensitive
sectors are showing signs of moderating growth, it said, "there is no
evidence of a sharp or broad-based slowdown as yet."
All 23 analysts in a Reuters poll last week had expected the RBI to
raise rates by 25 basis points on Tuesday, although 9 of them expected
a pause in the tightening cycle after July amid signs of slowing
domestic growth and global uncertainty.
Recent industrial output and manufacturing data was the worst in nine
months, while sales of cars have slowed sharply and loan demand is
easing, complicating the central bank's inflation-fighting task.
Subbarao said Tuesday's policy actions are expected to "maintain the
credibility of the commitment of monetary policy to controlling
inflation."
The measures are also expected to "reinforce the point that in the
absence of complementary policy responses on both demand and supply
sides, stronger monetary policy actions are required," Subbarao said
in his report.
January-March quarter growth was a worse-than-expected 7.8 percent,
with economists expecting India to grow at 7.9 per cent in the fiscal
year that began in April, according to a Reuters poll, less than the
8.5 percent growth in the fiscal year that ended in March.
RBI raised interest rates by a higher-than-expected 50 basis points on
Tuesday, stepping up its fight against persistently high inflation
despite slowing growth in Asia's third-largest economy.
TheReserve Bank of India (RBI) increased therepo rate , at which it
lends to banks, to 8 per cent, exceeding market expectations that it
would raise rates by 25 basis points.
The rate increase is its 11th since March 2010, making the RBI one of
the most aggressive inflation fighters among central banks.
Still, wholesale price index inflation was 9.44 per cent in June, more
than double the central bank's comfort level, and high prices are
expected to persist in coming months.
The central bank, whose forecasts for inflation have proven optimistic
in recent quarters, increased its outlook for wholesale inflation at
the end of the fiscal year in March to 7 per cent, from 6 percent
earlier.
"Considering the overall growth and inflation scenario, there is a
need to persevere with the anti-inflationary stance," RBI Governor
Duvvuri Subbarao wrote in his quarterly policy review.
The RBI stuck with its forecast for economic growth in the current
fiscal year of around 8 per cent. While some interest-rate sensitive
sectors are showing signs of moderating growth, it said, "there is no
evidence of a sharp or broad-based slowdown as yet."
All 23 analysts in a Reuters poll last week had expected the RBI to
raise rates by 25 basis points on Tuesday, although 9 of them expected
a pause in the tightening cycle after July amid signs of slowing
domestic growth and global uncertainty.
Recent industrial output and manufacturing data was the worst in nine
months, while sales of cars have slowed sharply and loan demand is
easing, complicating the central bank's inflation-fighting task.
Subbarao said Tuesday's policy actions are expected to "maintain the
credibility of the commitment of monetary policy to controlling
inflation."
The measures are also expected to "reinforce the point that in the
absence of complementary policy responses on both demand and supply
sides, stronger monetary policy actions are required," Subbarao said
in his report.
January-March quarter growth was a worse-than-expected 7.8 percent,
with economists expecting India to grow at 7.9 per cent in the fiscal
year that began in April, according to a Reuters poll, less than the
8.5 percent growth in the fiscal year that ended in March.
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