India inflation accelerates, paving way for rate hikes

NEW DELHI, October 29, 2009 (AFP) – India’s annual inflation rate has picked up pace, official data showed Thursday, setting the stage for higher interest rates in the months ahead. The wholesale inflation rate rose to 1.51 percent in the week to October 17 from 1.21 percent the previous week, according to the Wholesale Price Index, India’s most watched cost-of-living barometer.

The data came two days after the central bank forecast in a policy review that inflation would touch 6.5 percent by the end of the current financial year in March.

The bank held benchmark borrowing rates steady at record lows on Tuesday, but unwound some of what it called the “unconventional” monetary easing measures it had taken to counter the global financial crisis.

The bank ordered commercial lenders to increase slightly the minimum share of deposits to be held in government bonds, cash and gold to 25 percent, from 24 percent.

Economists say the central bank could start raising interest rates early in the new year.

Reserve Bank of India governor D. Subbarao said on Tuesday that “India is actively confronted with an uptrend in inflation”. He said the bank faced a difficult task in