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India Needs Tighter Monetary Policy to Cool Inflation, RBI Official Says
India needs “aggressive” monetary policy tightening to slow inflation, a central bank official said, sending bond yields to the highest level in almost three months.
“Monetary tightening has to be more aggressive,” the official, who declined to be identified because he isn’t authorized to speak to the media, said in New Delhi today.
Reserve Bank of India Governor Duvvuri Subbarao this week raised interest rates for the fourth time since mid-March to cool prices. India’s wholesale-price inflation rate has stayed above 10 percent since February and the finance ministry expects it to accelerate as the June 25 fuel-price increase filters into the economy.
Ten-year Indian government bond yields climbed three basis points to 7.8 percent at 1:30 p.m. in Mumbai. The Bombay Stock Exchange’s Sensitive Index was little changed at 17,946.95 while the rupee gained 0.2 percent to 46.69 against the dollar.
Monsoon rains will play a key role in moderating food prices, the official said.
India’s food inflation slowed for a second week, a government report showed today, as monsoon rains enabled farmers to plant more rice, cotton and soybeans.
An index measuring wholesale prices of agricultural products compiled by the commerce ministry rose 9.67 percent in the week ended July 17 from a year earlier. It gained 12.47 percent the previous week.
The June-September monsoon rains are the main source of irrigation in India.
Subbarao on July 27 raised the reverse repurchase rate by half a percentage point to 4.5 percent and the repurchase rate to 5.75 percent from 5.5 percent.
Prime Minister Manmohan Singh’s government in June allowed state-run refiners to increase prices of gasoline and diesel.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Tushar Dhara in New Delhi at tdhara1@bloomberg.net
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