Econintersect: The RBI (Reserve Bank of India) has raised repo and reverse repo rates by 25 basis points each. The increases (to 6.50% repo and 5.50% reverse repo) came as RBI raised to 7% (from 5.5%) the inflation forecast for March.Prime minister Manmohan Singh has been increasingly criticized for increasing inflation at the consumer level. From The Times of India:
Subbarao raised policy rates six times in 2010 by 25 basis points each, but that turned out to be too little. In contrast, his predecessor YV Reddy often shocked the markets. It has been the most aggressive major central bank in Asia this year.Industrial output fell to an 18-month low in November with production growing at a slow 2.7 percent.
RBI on Monday said that containing inflation would be the top priority as high rate of price rise could hurt the economic growth. In its assessment of inflation, though the central bank has spoken at length on the supply-side constraints, it has after a long time acknowledged that high food and fuel inflation pose a risk of spillover to core inflation through higher input costs and inflation expectations.
Global Economic Intersection has had recent analysis and discussion of inflation problems in India. Ajay Shah (January 25) says that “India has an inflation crisis” and Sunil Chandra (December 27, 2010) characterized “RBI holding a tiger by the tail.”
Sources: The Times of India and GEI Analysis (Ajay Shah and Sunil Chandra).
