RBI expected to raise rates on Tuesday, hints Pranab

Intterest rates in India could head northwards with the Reserve Bank of India (RBI), the country's central bank, expected to raise key rates tomorrow while unveiling its monetary policy.

Finance minister Pranab Mukherjee today hinted that rates could be raised to tackle inflation, which refuses to fall despite a series of measures by the central government and the RBI.

Speaking to reporters on the sidelines of a conference of state finance secretaries, Mukherjee said the RBI may take necessary steps to help curb inflation.

Food price inflation continues to remain at uncomfortably high levels. According to government figures, it was at 13.75 per cent for the week ended October 16, while overall inflation was at a more manageable 8.62 per cent in September.

Some analysts expect the central bank to raise both the repo and reverse repo rates by 25 basis points each from the existing six per cent and five per cent respectively.  The RBI has already tweaked its policy rates five times this year.
 
While Mukherjee appeared concerned over the continuing rise in inflation, he was confident that the Indian economy was back on the path of growth. While the fiscal deficit would not exceed 5.5 per cent of GDP as estimated in the budget, the economy would soon go back to the robust growth rate of nine per cent, he said.

According to the finance minister, the recovery is in line with the growth projection of 8.5 per cent for fiscal 2010-11. The centre was hopeful of reducing the fiscal deficit to 4.8 per cent of GDP in 2011-12 and 4.1 per cent in 2012-13.

The debt stock of the central government was also projected to come down to 48.2 per cent of GDP by the end of 2012-13 as per the medium-term fiscal policy statement and in line with the recommendations of the 13th Finance Commission.

Reiterating his government's commitment to fiscal consolidation, Mukherjee urged the states to remain committed to their fiscal roadmap. The 13th Finance Commission had mandated that fiscal deficits of the state should come down gradually to 2.4 per cent of the GDP.