India unexpectedly raises Interest rates because of Inflation

[Cassandra Syndrome]

Their headline rate hits 10% as commodity price increases begin to bite. Their interest rate is less than 4%, which is a reckless enough policy as this country found out the hard way. Basically it means that holding on to 1,000 Euro is worth 990 Euro next year, but borrowing 1,000 Euro today is worth 997 Euro next year. You are 7 Euro better off by borrowing. Real Fire, Burn and Cauldron Bubble recipe there.

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.”

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 World Bank indicated this week that China should also act to help contain the risk of a property bubble.

“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” to contain inflation.

http://www.businessweek.com/news/201...-to-come-.html

[C. Flower]

Their headline rate hits 10% as commodity price increases begin to bite. Their interest rate is less than 4%, which is a reckless enough policy as this country found out the hard way. Basically it means that holding on to 1,000 Euro is worth 990 Euro next year, but borrowing 1,000 Euro today is worth 997 Euro next year. You are 7 Euro better off by borrowing. Real Fire, Burn and Cauldron Bubble recipe there.

http://www.businessweek.com/news/201...-to-come-.html

India dealt with a land price bubble that could have been like ours by banning loans for buying "raw land" when the market started to overheat.

General inflation may be more difficult to deal with.

[Cassandra Syndrome]

India dealt with a land price bubble that could have been like ours by banning loans for buying "raw land" when the market started to overheat.

General inflation may be more difficult to deal with.

Yeah they were more proactive than we were. Our government faced with an asset credit bubble, decided to provide more fiscal stimulus for building properties. Great thinking.

Doing nothing would have been more productive.

But that is a massive spread with the Indians. That could spin out of control very easily.