India hikes rates for fourth time this year

India hiked its main interest rates for a fourth time this year in a fresh bid to tame double-digit inflation.

MUMBAI: India hiked its main interest rates on Tuesday for a fourth time this year in a fresh bid to tame double-digit inflation.

The move was the second increase this month and is designed to tackle surging consumer prices that are being driven by high food costs, rising wages and an expanding economy that is forecast to grow by 8.5 per cent this fiscal year. India’s inflation rate is now the highest among the Group of 20 economic powers.

“The domestic economic recovery is firmly in place, strengthening and steadily reverting to a pre-crisis growth trajectory,” Reserve Bank of India (RBI) Governor D Subbarao said in a statement. “Inflationary expectations are elevated and persistent.”

India’s annual wholesale price index, the main cost-of-living measure, stood at 10.55 per cent in June, well above the central bank’s preferred 5.5-per cent level, putting pressure on Subbarao to act.

Rising prices are one of the biggest political issues in the country and a daily subject of conversation for millions. The cost of food has been rising since last year when the worst drought in 37 years hit farm output.

Food inflation is now spilling into the general economy as activity accelerates. The bank raised its inflation projection for this fiscal year to March 2011 to six per cent from 5.5 per cent, and increased its growth projection to 8.5 per cent from eight per cent previously.

Over the last seven months, annual food inflation has swung between 13 and 20 per cent, causing huge hardship, especially among the 450 million people who struggle below the poverty line. Inflation is expected to remain problematic for the next few months but should moderate by the end of 2010.

Published in The Express Tribune, July 28^th, 2010.