Reserve Bank of India Tightens Again

June 16, 2011

The key repo rate and reverse repo rate, which moves in lockstep with the repo and lies 100 basis points below such, were raised by 25 basis points today.  Reserve requirements were not changed and remain at 6.0%.  The repo rate now becomes 7.5%.  The previous rate hike was made on May 3.  This was the repo rate’s fourth increase in 2011, totaling 125 basis points.  There were six increases last year beginning in March and totaling 200 basis points from a cyclical low of 4.25%.  The latest readings of WPI inflation (9.06%) and CPI inflation (9.4%) both exceed 9%.  A statement from central bank officials stresses a continuing need to contain elevated inflation and expected inflation and, despite spotty moderations in growth, finds “no evidence of any sharp or broad-based slowdown.”  Real GDP increased 7.8% between the first quarters of 2010 and 2011 but is believed likely to record an average increase of about 8.5% in calendar 2011.  Monetary tightening is clearly not finished yet.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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