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India finance minister says more rate hikes likely

Indian Finance Minister Pranab Mukherjee said Wednesday more monetary and fiscal steps were in the pipeline to tame stubborn inflation.

On Tuesday, India’s central bank increased rates by a higher-than-expected 50 basis points, the 11th rise since March 2010, as it struggles to combat near double-digit inflation.

“We will continue to take monetary and fiscal steps” to curb prices, the finance minister told reporters in New Delhi, adding this was not “the end of the tunnel.”

Mukherjee urged business leaders not to be alarmed by the string of rate increases the longest streak of monetary tightening in a decade after they voiced worry about their impact on the economy.

He told reporters that while there was deceleration in industrial production and slower growth in sectors sensitive to interest rates, he was confident “the Indian economy would be in a position to come back.” On Tuesday, the Confederation of Indian Industry (CII) business umbrella group said the sharp rate rise was “a matter of great concern” when data indicates a “clear slowdown” in industrial output.

Business leaders have said the string of interest rate hikes is making borrowing much more expensive for industry and slowing needed investment.

Mukherjee said inflation, running at 9.44 percent, should be around six to seven percent by year-end and recalled India had lived before with high inflation of 24 per cent in 1974 and 18 percent in 1990.

The government earlier this month cut its growth forecast for this financial year to 8.6 percent from nine percent to reflect the impact of the rate hikes to tame inflation, the highest among global economies after Russia.

But economists say growth this fiscal year could slow further, possibly to below 8.0 percent. India’s economy grew by just 7.8 percent in the January-March quarter, the lowest in five quarters.

NEW DELHI, AFP

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