India's central bank governor gave the clearest sign yet on Monday that interest rates will rise later this month, saying the country faced "surging inflation".
"A lot of countries are still flirting with deflation. On the other hand, we are having surging inflation," the Reserve Bank of India (RBI) governor Duvvuri Subbarao told a group of university students in Mumbai on Monday.
India's annual inflation rate accelerated in December to 8.43 percent, led by rises in the cost of food, fuel and commodities.
The RBI is widely expected to raise short-term interest rates by at least 25 basis points when it meets on January 25, with the latest comments likely to reinforce analysts' forecasts.
"Other central bank governors tell me: why don't you give us a bit of your inflation. That's how desperately they want some inflation and how desperate we are to control our inflation," Subbarao said.
Controlling inflation has become a headache for the left-leaning Congress-led government, which issued new proposals last Thursday to rein in surging food prices.
Ahead of Subbarao's comments, state-run fuel firms hiked their prices for the second time in a month, increasing the petrol price by 2.5 rupees a litre in the capital to 58.37 rupees ($1.28).
Onions have also been front-page news for the last month after prices more than tripled from their normal level due to unseasonable rains that spoiled crops late last year.
Top finance ministry official Ashok Chawla said he was confident headline inflation could dip to 6.5 percent by the end of March, although that would still be above the RBI's tolerance level of 5.5 percent for the fiscal year.
Indian shares have fallen to three-month lows due to hardening expectations of further interest rate rises, which will dampen economic activity.
On Monday, stocks rose 0.12 percent in choppy trade, with the benchmark 30-share Sensex index up 21.81 points at 18,882.25.
The RBI was one of the most aggressive in 2010, raising the cost of borrowing on six separate occasions as the South Asian economy powered out of the global downturn.
"When it comes to balancing growth versus inflation, the RBI is heavily weighed towards inflation," Barclays Capital India economist Siddhartha Sanyal told AFP.
Rajeev Malik, senior analyst of CLSA Securities, forecast that the RBI would hike rates three times by mid-2011, starting with an increase this month.
India's economy grew a forecast-breaking 8.9 percent year-on-year in the July-September 2010 quarter and is forecast by the government to expand 9.0 percent in the current fiscal year to March 31.
-- Dow Jones Newswires contributed to this report --
Source: AFP Global Edition
