By- Hindustan Times, 21-07-06
INDIA'S CENTRAL bank is expected by most analysts to raise its key shortterm interest rate next week for the third time this year to curb inflation in a rapidly growing economy, a Reuters poll showed on Thursday.
Twelve of 15 analysts said the central bank would raise its benchmark reverse repo rate by 25 basis points to 6 per cent when it reviews policy on July 25, taking it to its highest level in four years.
The Reserve Bank of India (RBI) last raised the reverse repo, the rate at which it absorbs funds from the market, by 25 basis points to 5.75 per cent on June 8 in an unexpected move after the government raised retail fuel prices.
"Stronger-than-expected industrial activity, still elevated pace of credit expansion and increased risk of higher inflation indicate that the RBI is poised to hike interest rates 25 basis points on July 25," JP Morgan said in a research note.
The yield on the benchmark 10-year bond has risen 64 basis points since the June rate increase, striking a four-year high last week of 8.43 per cent.
Of the 12 analysts who expected borrowing costs to rise next week, eight saw the central bank raising rates after July as well.
They said the central bank would be taking note of higher interest rates in the United States, Japan and the euro zone as well as record international oil prices and a rupee that fell this week to a three-year low against the dollar.
