Saturday, March 20, 2010

Countries are starting the interest rate cycle

By Cherian Thomas and Anil Varma

March 20 (Bloomberg) -- India’s central bank will probably raise interest rates again next month as the first increase in two years is only the initial step in the battle against inflation, BNP Paribas SA and Standard Chartered Plc said.

The Reserve Bank of India yesterday increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.”

“This is just a sign of things to come,” said Manoj Rane, treasurer at BNP Paribas in Mumbai. “A 25 basis-point increase doesn’t get you there but it sets the course.”

Governor Duvvuri Subbarao’s move comes after Australia and Malaysia increased rates this month, while Norway and Israel did so at the end of last year as the global economy’s recovery from the worst recession since World War II gathers pace.

The US Central Bank will have to follow suit, but how soon?

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