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Jakarta Post

India vs RI: Parallelism in inflation and interest rates

  • Harry Su

    Bahana Securities

  /   Thu, July 29 2010   /  10:44 am

India: Two days ago, the Reserve Bank of India (RBI) increased its two key policy rates on the back of continued inflationary pressure. High inflation has developed into a big political dilemma in India. In fact, the hike surprised the market as the government came up with a 50-basis point hike in the reverse repo rate to 4.5 percent, more than the 25-basis point hike expected by analysts. This is the fourth time this year that India has raised interest rates (exhibit 1). Meanwhile, the repo rate was lifted by 25 basis points to 5.75 percent with the RBI highlighting the increase in demand-side price pressures.Indonesia: Bank Indonesia’s benchmark rate currently at 6.5 percent has remained unchanged since July 2009.

India: Another concern for the RBI is rapidly rising food prices, particularly given monsoon rains since early June have been below “normal” lev...