RBI Flags Inflation Threat

Indian monetary policy must tackle elevated inflation even as most analysts see growth in Asia’s third-largest economy slowing to an 11-year low, the central bank said on the eve of today’s interest-rate decision.

“Monetary policy faces an unenviable task of anchoring inflation expectations, even while growth remains tepid,” the Reserve Bank of India said in an economic review yesterday. The central bank will probably raise its benchmark interest rate for the second straight month to fight the fastest consumer-price inflation in Asia, a Bloomberg survey showed. The decision is expected at 11:00 a.m. local time.

Governor Raghuram Rajan, who pledged to contain price increases after taking charge of the RBI last month, faces consumer inflation of almost 10 percent as the rupee’s drop over the past year stokes import costs. Making credit more expensive risks further hampering Prime Minister Manmohan Singh’s efforts to revive economic expansion before elections due by May.

Bloomberg

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