High Interest Rates Seen Ahead in India

Indian government bonds headed for their biggest daily fall in over two months on Wednesday after a central bank panel suggested making taming elevated retail prices a priority, raising prospects of a sustained period of high interest rates.

A Reserve Bank of India (RBI) panel on Tuesday recommended making managing retail inflation its main policy objective, and said it should set an eventual target of 4 percent for consumer price inflation (CPI), with a plus or minus 2 percent band.

The RBI panel added it should aim to lower CPI, currently at 9.87 percent, to 8 percent over the next 12 months and to 6 percent in the next 24 months.   To get there, the RBI would need to keep monetary policy tight after last raising interest rates by 50 basis points over September and October.


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