Fifth interest rate hike expected as India battles inflation

NEW DELHI, September 12, 2010 (AFP) – India is expected to hike interest rates this week for a fifth time in six months after a surge in industrial output strengthened the case for another dose of monetary tightening, economists say. Although India has been the most aggressive in the Asia-Pacific region in raising rates to check prices, the country’s inflation remains among the highest of the leading Group of 20 economic powers, at nearly 10 percent.

Economists had expected the central bank might hit the pause button on rate increases when policymakers meet this Thursday, to allow time to assess the strength of India’s recovery from the global financial crisis.

But figures late last week showing a 13.8 percent leap in industrial output in July from a year earlier — nearly double the market forecast of 7.8 percent — have dispelled that speculation, experts say.

“We judge that a Reserve Bank of India policy rate hike is a done deal,” said Kevin Grice, international economist at London-based Capital Economics.

Production of capital goods such as machinery in Asia’s third-largest economy soared a massive 63 percent, while output of consumer durables such as washing machines climbed 22 percent, the data released Frida