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India Spending Plans May Spur More Rate Rises, Gokarn Says

Reserve Bank of India Deputy Governor Subir Gokarn signaled that a move by the government to boost spending on health care and food risks adding to inflation pressures without steps to pay for it, forcing the central bank to respond with higher interest rates.

“If it comes in a way in which government commitments increase without their ability to finance them, then it is a problem,” Gokarn said in an interview in his office today in Mumbai after the RBI raised its benchmark rate a half point yesterday. “Inflation pressures mount and in which case the response of the central bank is to use the only instrument that it effectively has, which is the interest rate.”