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HindustanTimes Fri,18 Apr 2014

Interest rate regime may get tougher

HT Correspondent, Hindustan Times  New Delhi, October 14, 2013
First Published: 23:35 IST(14/10/2013) | Last Updated: 01:20 IST(15/10/2013)

As India’s inflation rates galloped towards worrisome levels on Monday— wholesale inflation was at a 7-month high of 6.46% in September and retail inflation rose to 9.84% during the month — the Reserve Bank of India (RBI) is unlikely to cut lending rates as cooling prices remains its topmost priority.

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India’s index of industrial production (IIP) — a gauge for measuring production in factories —  crawled to 0.6% in August belying hopes of a turnaround  when it grew from 2.7% in July, expanding for the first time in three months.

Industry leaders have been ratcheting up their demand for an interest rate cut arguing that the high borrowing costs have crimped capacity expansion and  hurt the economy.

“It is of utmost importance to shore up flagging investor sentiment, which has been adversely affected by high interest rates,” said Chandrajit Banerjee, director general, CII.

Experts, however, felt that the RBI was unlikely to oblige.

“The build-up in underlying inflation pressures suggests that the RBI has to keep its inflation guards up,” said Leif Eskesen, chief economist for India and ASEAN at HSBC.

RBI governor Raghuram Rajan had last month raised the repo rate, on which banks base their lending rates, by 0.25 percentage points to 7.50%.

“Considering the rising inflation RBI is expected to keep its key interest rates unchanged in its monetary policy review on Octobe 29,” said Madan Sabnavis of Care Ratings.

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