MUMBAI: India's central bank expects inflation to cool in the final quarter of the year as a result of its aggressive cycle of rate hikes, a senior official was quoted as saying on Monday.
The Reserve Bank of India (RBI) last week increased rates by 25 basis points, the 10th rise in 16 months to battle inflation of more than nine percent.
Business leaders rounded on the government and called for a halt in the hikes amid signs that the higher cost of borrowing and weakening investor confidence were hitting the economy.
Deputy Governor Subir Gokarn said inflation would remain high until at least October -- the start of the third quarter of India's financial year -- but the effect of the rate rises would begin to be seen after that.
"Slower growth is something we accept as a price of managing inflation, but we don't expect that slowdown to be dramatic," he said in an interview, with Bloomberg-UTV television reported in the Indian press.
"We expect that growth will move from 8.5 percent to 8 percent this year but, along with that, inflation will come down from nine percent to six percent by the end of the (fiscal) year, assuming that no new shocks are to appear."
Key to a pause on further hikes will be the stabilisation of core inflation -- inflation excluding changes in food prices -- which in May was running at 7.3 percent, said Gokarn.
The RBI will halt rate rises only when it sees "particularly the non-food manufacturing inflation starting to stabilise, which is what we saw in the second half of 2010... We need to keep an eye on that," he said.
Indian shares are down nearly 13 percent this year -- the worst-performing in Asia -- while foreign investors have become net sellers of Indian stocks.
Copyright AFP (Agence France-Presse), 2011
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