Soaring Demand Pull Inflation forces India's Central Bank RBI to hike Interest Rates by 25 bps to 5.5%

India’s Rising Inflation crosses into Double Digit territory

India has seen inflation increase at a rapid pace in the recent months with the Wholesale Price Infalation (WPI) crossing into the double digits in the most recent reading.While Food Inflation in India has been on the higher side for the last 6 months due to insufficient rains (Monsoon) last year,the WPI had been  at a low level.The low price of Commodities and slowing of Economic Growth around the world had kept the wholesale prices in check.However with the improvement in the Global Economy (despite the China and European trouble) has made even this measure go up.The statement of RBI clearly alludes to the worry about rising Wholesale Price Inflation.RBI has ignored Food Inflation of >15% which is a major cause of concern for India’s huge numbers of  poor citizen.The reason was given that RBI could not control the food prices due to the shortage of food production from a weak monsoon last year.

Strong Growth Leading to Demand Side Inflation Pressure Forces RBI to raise Interest Rates for the Third Time

India has seen almost 9% growth in Q1 2010 which is second only to China boosted by strong industrial and services growth.The industrial growth figures have been north of 15% while Services also continues to chug along strongly.India’s recent moves to deregulate Oil prices has raised inflation expectations.The Central Bank of India RBI has been dovish about raising Interest Rates as European problems have made the Reserve Bank cautious about a slowing of growth.However the government’s Oil Deregulation has forced RBI to raise intersest rates by 25 bps despite a  policy meeting in 3 weeks.This irregular raising of interest rate is the Third time this year as India’s Economy remains resiliently strong despite Global Economic problems.

India is one the Best Placed Economies in the World right now

The recent windfall auction of 3G revenues,strong foreign investment,industrial growth and relatively stable governance has made India one of the most,if not the most attractive economic destination in the world.Despite a multitude of problems,India’s Economy seems to have acquired a strong momentum like China in the 1980s.While Reforms are still moving at a snail’s pace,India’s vibrant private sector has led India’s Economic Resurgence.India’s Stock Market is reflecting the strong fundamentals despite the sharp correction being seen in the Developed and Chinese Stock Markets

India Central Bank Raises Rates – WSJ

India’s central bank Friday raised its key policy rates for the third time this year in an unscheduled move, accelerating its monetary tightening and saying it is open to taking further steps to tame rising prices amid a fast-expanding economy.The move shows Asia’s third-largest economy after Japan and China will continue to normalize its policy rates even as developed nations remain on a pause with the European debt crisis clouding a global recovery. The Reserve Bank of India is one of the few major Asian central banks that started tightening rates since the global economic crisis.

The post-market rate hike comes even as the government consistently made clear its stance against an immediate move to make funds costlier as that would hurt growth.The RBI raised its key policy rates by 25 basis points, effective immediately. The central bank’s borrowing rate, or reverse repurchase rate, now stands at 4% and its lending rate, or repurchase rate, at 5.5%. With this, the RBI has raised its key rates by 75 basis points in 2010.