Expert Views: RBI raises interest rates

Source : REUTERS
Last Updated: Fri, Sep 20, 2013 06:23 hrs
RBI

Reserve Bank of India unexpectedly raised its policy interest rate by 25 basis points on Friday but rolled-back some of the measures it had implemented to support the battered rupee currency.

In his first monetary policy review since taking office on Sept 4, RBI Gov. Raghuram Rajan increased the repo rate by 25 basis points to 7.50 percent. Economists had widely expected the RBI to leave the repo rate unchanged.

COMMENTARY

ANJALI VERMA, CHIEF ECONOMIST, PHILLIPCAPITAL, MUMBAI


"Hiking the repo rate was unexpected. The governor is clearly worried about inflation. He is saying the improved international conditions will take care of the current account deficit funding and his focus will shift to fiscal deficit and inflation, which were taking a backseat."

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI

"While partial rollbacks of the exceptional measures were expected, RBI clearly has highlighted the need to anchor inflationary expectations by raising the repo rate. We expect inflationary concerns to continue to remain the dominant factor driving the trajectory for repo rate going ahead."

BACKGROUND

- Food inflation accelerated to a three-year high of 18.18 percent in August, government data released on Monday showed, driving the benchmark Wholesale Price Index up by a stronger-than-expected 6.1 percent.

- Industrial output rose 2.6 percent in July from a year earlier, its first expansion in three months, lifted by a robust rebound in capital goods production - often seen as a barometer for investments in Asia's third-largest economy.

- Some Indian companies could see the quality of their debt decline as higher global borrowing costs and a sharply weaker rupee take their toll, Moody's Investors Service said last week.

- Foreign banks are pushing to raise billions of dollars from expatriate Indians in response to New Delhi's drive to defend its weak currency, which could mean the government can avoid the need for a sovereign bond or state-backed deposit scheme to attract inflows.

- India increased the import duty on gold jewellery to 15 percent from 10 percent on Tuesday, in a move aimed more at protecting the domestic jewellery industry rather than stemming overseas purchases to narrow its current account deficit.


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