RBI Governor Hints at Rate Hikes

28 September 2011 - Which Way to Pay

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RBI Governor Hints at Rate Hikes

The Reserve Bank of India has indicated that rates may be hiked further as aggressive monetary policy is maintained as government policy carries on pushing for fiscal growth.

The governor of the RBI, D Subbarao, gave a talk at the Stern School of Business in New York in which he said that the bank has been warding off inflation for the past 20 months. He state that ‘monetary tightening works by retraining demand. Inasmuch as the fiscal stance is supportive of demand, the monetary stance has had to be more aggressive than otherwise.’

He added that for the Bank to support growth with low interest rates, fiscal consolidation needs to be better established. On these comments, bond prices fell as many investors saw them as a hint that interest rates are to hiked by the central bank.

Only ten days ago, the Reserve Bank announced the 12th hike in interest rates in 18 months. Over the same period of time, the RBI increased rates by 350 base points. The monetary policy review scheduled for the 25th October is now expected to see further rate hikes.

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