Most of the rate rises expected in India have already happened, if the RBI’s quarterly survey of professional forecasters is any indication.

The repo rate, currently 5.75 per cent, will end the financial year 2010-11 slightly higher than previously thought, at 6.25 per cent, ending the following year at 6.5 per cent. The reverse repo rate, currently 4.5 per cent, is still expected to finish FY 2010-11 at 4.75 per cent, but is expected to rise considerably to 5.5 per cent by end 2011-12 (not shown on chart). Read more

Portfolios have been rearranged among deputy governors at the RBI. India’s central bank made the announcement late yesterday, giving little explanation. In particular, key changes have been made to the remit of deputy governor Dr K C Chakrabarty. The Times of India reports:

Departments like rural and urban cooperative banks have been re-allocated to Usha Thorat while departments of payments and settlement systems have been given to Shyamala Gopinath. Department of administration & personnel management, including works related to Right to Information Act, will be under Subir Gokarn. All these departments were earlier under Chakrabarty. Read more

Growing risk aversion among investors is slowing foreign capital flows to emerging markets such as India, potentially choking inflows needed to fund the nation’s widening current account deficit, India’s central bank said.

Duvvuri Subbarao, the governor of the RBI, told the FT that the expectations of the world’s senior economic policymakers about the volume of capital inflows in emerging markets had dramatically changed over the past three months. “Even three months ago, we were talking about a possible flood of capital flows,” he said. Read more

The Reserve Bank of India has raised the repo rate 25 basis points, and the reverse repo rate 50bp – more than expected. “The dominant concern that has shaped the monetary policy stance in this review is high inflation,” said the bank. Rates now stand at 5.75 and 4.5 per cent, respectively.

While the recovery has consolidated within India, the central bank notes a “significantly” altered global economy: Read more

As part of the ‘calibrated exit’ from expansionary monetary policy, the Reserve Bank of India unexpectedly increased the repo rate to 5.5 per cent and the reverse repo rate to 4.0 per cent. The central bank also extended liquidity support already in place for commercial banks:

i) The additional liquidity support to scheduled commercial banks under the LAF to the extent of up to 0.5 per cent of their net demand and time liabilities (NDTL) currently set to expire on July 2, 2010 is now extended up to July 16, 2010. For any shortfall in maintenance of statutory liquidity ratio (SLR) arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc measure. Read more

The Reserve Bank of India has increased the repo and reverse repo rates by 25bp, taking them to 5.5 and 4 per cent, respectively. The principal motivation was inflation:

The developments on the inflation front … raise several concerns. Overall, WPI inflation increased to 10.2 per cent in May 2010, up from 9.6 per cent in April 2010. Food price inflation and consumer price inflation remain at elevated levels…. Significantly, two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident. Read more

The newly-introduced base rate has reportedly been set at 8 per cent by India’s central bank, effective from July 1. Expectations were higher, in the 10-11 per cent range, when the introduction of a base rate was announced in February. Eventually, all loans* in India will be made on or above the base rate.

The current system – called the ‘benchmark prime lending rate’ – has been in use since 2003, and, like the current proposal, was introduced to improve transparency and integrity in the pricing of credit. At present, banks offer loans to big corporates at about 8-9 per cent, while the average BPLR is 11-12 per cent. SMEs are usually charged a higher lending rate of 14-16 per cent. Read more

By James Lamont in New Delhi

A possible emergency interest rate hike in India is back on the cards.

Data showing India had recorded 8.6 per cent economic growth in the quarter to the end of March has reignited expectations that the Reserve Bank of India might not wait for the July quarterly policy review to tighten monetary policy.

Comments by Pranab Mukherjee, the finance minister, on his arrival in South Korea for G20 talks will have only emboldened the hawks. India, after only Australia, has tightened monetary policy most aggressively in the G20. More is to come soon.

Mr Mukherjee said India would continue to raise interest rates in spite of uncertainty surrounding the wider effects of the eurozone’s debt woes to the global economy. In his view, India’s largely domestically-driven economy has very little exposure to Greece.

What Mr Mukherjee says about monetary policy counts. Read more

By James Lamont

India has kept its hand well hidden at the table of the G20’s deliberations over how to prevent another global financial crisis. So the acknowledgement by Pranab Mukherjee, the country’s finance minister, that a bank tax is no alternative to better regulation is illuminating.

Senior Indian policymakers have been non-committal about International Monetary Fund-backed proposals for a global banking tax. They were similarly muted when Gordon Brown, the former UK prime minister, claimed to have gained wide support among the G20 countries for a global banking tax to fund future bail outs. The UK Treasury was seeking out India as a key ally.

Part of the reason for India’s reticence is that it experienced the financial crisis very differently from the west, and even some of its Asian peers. India’s banks suffered no threat of collapse, nor earned a reputation for excessive risk or returns. Policymakers are confident of India’s own prudent regulation. They are less sure of regulation elsewhere. Read more

The Reserve Bank of India has raised rates for the second consecutive month, but by less than some economists had forecast. The repo rate now stands at 5.25 per cent and the reverse repo is up to 3.75 per cent: both changes are immediate. The central bank has also increased the amount of cash its banks have to hold with the central bank, relative to deposits – its cash reserve ratio – by 25bp to 6 per cent. This will be effective April 24. The last rise was a month ago, a 25bp increase decided at an unscheduled meeting of the board. High inflation is the main motivation behind the rises.