NEW DELHI: India's central bank is expected this week to hike interest rates for the seventh time in less than 12 months to clamp down on soaring inflation as clouds gather over the country's booming economy. Shares in India, one of 2010's hottest markets, have fallen to three-month lows due to expectations of interest rate rises, which will dampen economic growth currently running at 8.5-9.0 percent in Asia's third-biggest economy. Annual inflation zoomed in December to 8.43 percent, up by nearly a percentage point from the previous month, led by a spike in the cost of food, petrol prices and commodities. The Reserve Bank of India (RBI) has warned of “surging inflation.” Further souring the mood, investment house Goldman Sachs issued an alert this month on India and China over inflation, telling clients to shift into Wall Street and other Old World share markets as a safer bet in coming months. “We expect the Reserve Bank will raise rates by 25 basis points but the possibility of 50 basis points also has to be entertained,” said HSBC chief economist Lief Lybecker Eskesen. Rising prices have emerged as a major political and economic challenge in emerging markets across Asia, with China also expected to raise interest rates early next month to combat 5.0-percent inflation and a property bubble. In India, pressure has been steadily growing on the central bank and government to act to rein in inflation which threatens Prime Minister Manmohan Singh and his Congress party in the run-up to key state elections this year. Rising food prices have added to public anger over a series of massive corruption scandals, creating a toxic mix for Singh's administration just 18 months into its second term. The price of onions, for example – a staple on family shopping lists and known as a politically potent issue – has tripled to 80 rupees ($1.75) a kilogram in a few months. “A lot of countries are still flirting with deflation. On the other hand, we are having surging inflation,” RBI governor Duvvuri Subbarao said last week. – Agence France
