India May Need To Raise Interest Rates As Inflationary Pressures Pick Up- RBI Governor

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India might need to raise key interest rates before other countries as inflationary pressures are picking up, reported the media quoting the Reserve Bank of India (RBI) Governor D. Subbarao.

Subbarao, while addressing a seminar organized by Indian Council for Research in International Economic Relations, however said that the apex bank will begin to exit the monetary expansion only when economic recovery is secure. He also said that RBI will take into various factors like inflation, capital flows, industrial production growth, credit growth and other indicators to check whether the recovery is secure.

The RBI governor noted that the monthly rate of the wholesale price inflation between April 1 and August-end stood at 5.2%, while the annual rate of wholesale price inflation was a negative 0.12% for the week ended August 29th. He said that the monthly inflation rate will cross 5.2% in March 2010 and added that the apex bank has raised the inflation forecast for the fiscal to 5% from the earlier predicted 4 %.

He said that the major challenge before the government is to reverse the monetary expansion and boost growth. He said that India is a supply constrained economy and not a demand constrained economy.

Rao said raising interest rates will result in higher capital inflows and we require only a measured capital inflow. Foreign institutional investors (FIIs) invested $8.87 billion in Indian stocks so far in 2009, as per SEBI data. They sold more than $13 billion in 2008, while in 2007 FIIs pumped in $17.4 billion into the equity market.

(Market News Provided by RTTNews)