Rate hike looms as Sept inflation stays high at 9.72%

Posted on    15 October 2011

India’s inflation rate continued to remain close to worrisome double-digit levels bolstering speculation that the Reserve Bank of India (RBI), despite a slowing economy, may increase interest rates yet again to cool prices when it presents the quarterly policy review later this month. So, expect your EMIs on loans to go up all over again.


Wholesale price index (WPI)-based inflation, India’s most-watched cost of living index, stood at 9.72% in September, only marginally lower than the previous month’s 9.78%, fuelled by costlier food, fuel and manufactured products.

“It is not a very comfortable situation,” said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council. “For the monetary policy stance to change, inflation has to come down and show signs of definite decline. But that kind of an indication has not come.”

A slew of fiscal and monetary measures to cure inflation have not tamed prices, but have cast shadows on growth and hurt investments.

India’s factory output growth in August grew by a mere 4.1%, mirroring signs of an imminent industrial slowdown as rising input costs and costlier borrowing hit companies’ profits.

The RBI has raised interest rates 12 times in the past 19 months. Experts said the central bank may not be done yet with the rate hikes despite the strong signs that its policy rate tactics are slowing down the domestic economy.

A higher repo raises banks’ borrowing costs, which in turn prompts them to raise interest rate on final home, auto and corporate loans.


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