New Indian central bank head 'must raise rates'

2 September 2008

The new governor of the Reserve Bank of India is likely to raise interest rates in a bid to tackle inflation.

Duvvuri Subbaro, who replaces Yaga Venugopal Reddy in the post, refused to comment on the matter today.

However, the economist has been a consistent advocate of tightening rates in the past, Bloomberg reports.

Speaking to the news agency, Lobard Street Research economist Maya Bhandari said that Mr Subbarao needs to be "much tougher with monetary policy" than his predecessor.

Indian economist Gopal Krishan Chadha also said that the new bank chief was "not a mechanical bureaucrat or dogmatic", and that
"in the present circumstances one has to be a bit of a monetarist to fight inflation".

A Bloomberg poll of analysts has also forecast a rate raise of 0.25-0.5 per cent by October.

Inflation in India currently stands at 12.6 per cent, and has jumped since the government cut its subsidies on fuel.

The Mumbai-based Sensitive index gained 0.9 per cent on the news of Mr Subbarao's appointment.

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