RBI Monetary Policy Tightening

By admin • April 13th, 2010

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NEW DELHI (Reuters): The secretary for financial services in the finance ministry, R. Gopalan, said on Tuesday that the Reserve Bank of India (RBI) is expected to further tighten its monetary policy.

Markets are betting on another interest rate rise next week due to India’s rising inflation.

Investors have already priced a 25-basis point rate rise at the central bank’s policy review on April 20 after it raised rates last month.

Gopalan told reporters, “I share the views of some experts that some further amount of tightening is required”.

A pick up in the economy has seen a rise in inflation with the headline number expected to have breached 10 percent in March, for which the data is due on Thursday.

The RBI had cited increased capacity utilisation as one of the principal factors driving up inflation and analysts expect the central bank to try to cool demand until companies boost their potential output.

However, Gopalan stressed the need for the central bank to strike a balance between containing inflation and supporting growth.

“But there is an issue of growth. They (central bank) have to make a balance (between growth and inflation),” he said.

India, the world’s second fastest growing major economy after China, is expected to grow 8.5 percent in the current fiscal year and 9 percent in 2011/12.

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