In policy debut, RBI chief Rajan prescribes bitter pill - Indian Express

Reuters : Mumbai, Mon Sep 23 2013, 10:24 hrs Reserve Bank of India (RBI) Governor Raghuram Rajanis expected by many in the market to shift the RBI's main inflation gauge to consumer prices from wholesale prices. (Reuters) Reserve Bank of India Governor Raghuram Rajan may raise policy rates again after shocking markets by increasing them in only his first meeting, signalling he is willing to risk prolonging what is already the lowest economic growth in years in order to quash persistent inflation. Raising the repo rate by 25 basis points to 7.50 percent as India stumbles through its worst economic crisis since 1991 puts pressure on New Delhi to relieve supply-side bottlenecks in the economy, such as poor infrastructure, that keep inflation high even when demand is soft. That is a big ask for a weak coalition government, which also faces a general election by May. Rajan is expected by many in the market to shift the RBI's main inflation gauge to consumer prices from wholesale prices, putting India in line with most big economies but pushing up near-term rate expectations. Consumer price inflation was 9.5 percent for August, meaning the cost of living is rising faster than interest rates. The wholesale price index rose 6.1 percent. "If he goes ahead and hikes further, which I think he might, then it might affect growth. But ultimately, if you have to bring down inflation, there is no other option," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd in Mumbai. A prominent former IMF chief economist who famously predicted the global financial crisis, Rajan took office earlier this month amid much media fanfare and high expectations that he could engineer a turnaround for the sluggish economy and rescue a currency that had fallen as much as 20 percent this year. A flurry of measures by Rajan's predecessor and fresh moves on his first day in office have helped lift the rupee off its record low. Rajan rolled back part of the sharp increase in the marginal standing facility (MSF), an overnight rate, reassuring some in financial markets that the rupee measures are temporary. But in raising the repo rate, traditionally the policy interest rate, Rajan showed the central bank's priority had shifted from defending the rupee to fighting inflation. ... contd. ALSO READ FinMin to define FDI in line with global benchmarks As onion prices hit Rs 80: CCI seeks information from state govts Marketmen feel govt will not breach borrowing target this term FDI in services sector dips 36.5% during Apr-Jul Please read our terms of use before posting comments TERMS OF USE: The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s). via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHOd1bCiaVdxzQTJaUAlXi7pfTxbQ&url=http://www.indianexpress.com/news/in-policy-debut-rbi-chief-rajan-prescribes-bitter-pill/1172951/

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