To combat inflation, the Reserve Bank of India has set the repo rate at 5 per cent, and reverse repo rate at 3.5 per cent.

India’s central bank on Friday announced a surprise 25-basis point increase in its key policy rates – the first rise in nearly two years – in a bid to head off inflation that is poised to cross into double digits, writes Joe Leahy in Mumbai. Read more

The Indian Ministry of Finance doesn’t pull any punches: it has investigated the $5bn ratings agency industry and promptly issued twelve recommendations.

“A rating is only an opinion, albeit a very influential one,” states the reportRead more

Should central banks persist with inflation-targeting? “The crisis has given fresh impetus to the ‘new environment hypothesis’ that pure inflation targeting is inadvisable and that the mandate of central banks should extend beyond just price stability,” Dr Duvvuri Subbarao said today.

The Indian central bank governor argues that price stability does not ensure financial stability. In fact, he says, there is a trade-off between the two, and “the more successful a central bank is with price stability, the more likely it is to imperil financial stability.” Read more

The Indian central bank has asked Paypal to suspend some cash transfers to and from the subcontinent, leaving thousands of small companies without an income.

The Reserve Bank of India said yesterday that Paypal was not properly registered, following a change to the law in 2008. “Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act,” a spokeswoman told the NYT. “PayPal does not have our authorization.” The problems may take months to solve. Read more

Many commercial banks in India will pay more for loans from April 1, when the central bank implements a new system for pricing credit.

A base rate will be introduced by the central bank, and all loans made in India will be priced relative to – and above – that base rate. S.A. Bhat, chairman and managing director of state-run Indian Overseas Bank, told Reuters: “A back-of-the-envelope calculation shows that the base rate will be at around 10-11 per cent.” Read more

India’s central bank said on Tuesday it was permitting the introduction of currency futures in euro, yen, and pound sterling with immediate effect. Prior to this, the Reserve Bank of India had only allowed
currency futures trading in dollar-rupee contracts. (From Reuters)

Indian food prices surged an annual 20 per cent in early December as supply shortages hit, heightening expectations the central bank is set to tighten policy to curb inflation.

Food prices are jumping because of shortages after crops were hit by the weakest monsoon rains in 37 years and then flooding in parts of the country, but the price rises come as the economy is picking up strength after a dip in late 2008 and early 2009. Read more

Rising inflation has increased speculation of an interest rate rise in India. (The speculation, in turn, has pushed 10-year bond yields to a 13-month high.) “Inflation concerns are gathering pace and this may force the central bank to tighten liquidity before the end of this month,” said one analyst. There are also rumours the Bank will increase the proportion of deposits banks must set aside as cash – the cash reserve ratio – from 5 to 5.5 per cent. Finance Secretary Ashok Chawla said yesterday the government is concerned that inflation is quickening, though there was no need for emergency rate action. Inflation will be in “the region of 6 per cent” by the end of March, he said.

By James Lamont, South Asia bureau chief

A three month deadline for blueprints to overhaul India’s financial services industry is highly ambitious. Yet that is what Duvvuri Subbarao, India’s central bank governor, has given the boards of the country’s commercial banks to devise strategies to bank millions of unbanked people. Read more

Prices rose and yields dropped on India’s benchmark ten-year bonds, after central bank governor Duvvuri Subbarao signaled interest rates aren’t about to rise. Monetary policy action would only be needed if food inflation “persists for a long time,” he said. Inflation has been rising of late, with the November figure the highest for a year, although Subbarao said yesterday that food inflation was a supply-side phenomenon and that monetary policy was an “ineffective instrument” to rein in accelerating costs.

Protectionism and carbon emissions: both objectionable internationally, but irresistable nationally. And more fears of a Chinese bubble as relaxed lending standards cause a loan spree  Read more