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Chorus to raise rates as inflation hits world economy

business Updated: Apr 11, 2011 02:18 IST
HT Correspondent
HT Correspondent
Hindustan Times
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It’s not India alone, where authorities are battling to keep growth on track while reining in price. Governments and policymakers across the world are confronting the same challenge on the back of a sustained spike in global commodity prices.

Last week, the European Central Bank (ECB) increased its benchmark interest rate by a quarter percentage point, its first such move in three years, as it looks to control inflation. http://www.hindustantimes.com/images/HTPopups/110411/11_04_11-buss-19c.jpg

The ECB joined China, India, Poland and Sweden in raising interest rates to tame surging energy and food prices that are fanning prices of most goods.

Last week, China raised its benchmark one-year lending rate to 6.31% from 6.06%.

Chinese premier Wen Jiabao has described inflation as a tiger that “once set free will be very difficult to put back into its cage.”Back home, the RBI has raised benchmark interest rates eight times since March last year to cool prices.

Analysts and economists will be keenly watching for cues sent out by the US Federal Reserve, which many believe is unlikely raise interest rates immediately but could signal rolling back of the $600 billion (about R27 lakh crore) by June.

“We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability,” US Federal Reserve chairman Ben Bernanke said last week.

Experts warned global food and commodity prices could rise higher still in the wake of political uncertainties in the Middle-east. Since its spike in mid-February, on the heels of the political developments in the Middle East and concerns of nuclear energy spurred by the earthquake in Japan, the oil price has become a major investor concern.

Crude oil prices are hovering above $120 a barrel.

RBI deputy governor Subir Gokarn said soaring prices may hurt growth in the world’s second fastest growing major economy that is forecast to grow by more than 9% in 2011-12.