Home > XE Currency Blog > Higher Inflation Numbers Add Upward Pressure to India's Rates

AD

XE Currency Blog

Topics7226 Posts7271
By HaleStewart November 13, 2013 8:01 am
  • XE Contributor
HaleStewart's picture
HaleStewart Posts: 792
Higher Inflation Numbers Add Upward Pressure to India's Rates

As I’ve previously noted, the Indian Central Bank is in the middle of literally the worst policy bind a central bank faces: slowing growth and high unemployment.  The cure for slow growth is lower interest rates, the implementation of which leads to higher inflation.  Conversely, the cure for high inflation is higher interest rates, leading to lower growth.  There really is no way to win.

India’s new central bank head has opted to increase interest rates, as shown in this chart:

Over the long run, this is probably the better path as inflation fighting credentials are hard to obtain and very easy to lose.  And, once inflation is ingrained in the economy, it is extremely difficult to get rid of.  But, the slower growth that is bound to result will not make his job any easier.

Nor will the latest inflation numbers from the Indian statistics agency:

Provisional annual inflation rate based on all India general CPI (Combined) for October 2013 on point to point basis (October 2013 over October 2012) is 10.09% as compared to 9.84% (final) for the previous month of September 2013. The corresponding provisional inflation rates for rural and urban areas for October 2013 are 10.11% and 10.20% respectively. Inflation rates (final) for rural and urban areas for September 2013 are 9.71% and 9.93% respectively

The possibility of further rate hikes has increased thanks to this report.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

Paste link in email or IM