The Hindu : Business : Inflation, interest rates set to rise, says IEG

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Friday, Dec 31, 2004

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Inflation, interest rates set to rise, says IEG

NEW DELHI, DEC. 30. The rate of inflation based on wholesale price index is likely to fall to around 6.5 per cent, as forecast by the Reserve Bank of India, even as retail price level and interest rates may rise marginally, economic think tank Institute of Economic Growth (IEG) said today.

"In view of the drop in international crude oil prices and seasonal factors favouring lower primary product prices, we expect the inflation rate to come down marginally in the coming months to around 6.5 per cent," the IEG said in its latest report.

The Delhi-based IEG said the rising farm and industrial output along with declining money supply had restrained the price rise. However, the Consumer Price Index (CPI) is likely to rise marginally to around 4.7 per cent in the next three months, it said, adding retail inflation declined to 4.57 per cent in October from 4.8 per cent in September.

Indicating credit demand rise from the buoyant farm and industrial sector, the report said there would be a marginal increase in interest rates in the next three months from the present Prime Lending Rate of 10.25-10.75 per cent. It said upward pressures on the domestic interest rate after hike in international interest rates and high inflation have prompted the banks to raise their deposit and lending rates. "Both short-term and long-term government bonds yields are also edging up due to hike in international rates (particularly the U.S. Fed rate, which is increased four times since June 2004) and inflation rates," it added.

— PTI

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