India?s central bank on Thursday signalled it may raise interest rates in a measured manner as Europe?s debt crisis outweighs inflation concerns.
Global economic conditions have changed in the past six weeks and a ?cautious pace is the best way to go and that is the stance,? Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank of India, said. ?I am aware rates are quite out of line with inflation and the growth scenario.?
India and China are struggling to control inflation amid risks to growth emanating from debt woes of Greece, Portugal and Spain. Gokarn?s comments indicate the central bank may slow the pace of interest-rate increases even though RBI governor D Subbarao described rising prices as a ?big worry.?
?Interest rates will go up, but in a gradual way,? said Dharmakirti Joshi, chief economist at Crisil Ltd. Subbarao may raise borrowing costs by a quarter percentage point in the next monetary policy, Joshi said.
RBI on April 20 raised its benchmark interest rates by a quarter point for the second time in a month.
RBI unveiled its stance after the European Union and IMF cobbled together a 110 billion-euro rescue package for Greece on May 2 to prevent contagion. European leaders followed it up with a 750 billion euros emergency fund to back countries facing instability and a program of bond purchases by the European Central Bank.
Europe?s problems coincide with rising prices in India, with the benchmark wholesale-price inflation rate climbing 9.59% in April as demand for cars and houses increase. India?s industrial production grew 13.5% in March, rising more than 10% for a sixth straight month.
In China, where industrial production rose 17.8% in April, consumer prices climbed at the fastest pace in 18 months, adding pressure on policy makers to raise interest rates and allow yuan.
