Emerging Markets Weekly by Lloyds TSB

Indian inflation is likely to have continued to slow in November, with annual wholesale prices predicted to fall to 7.5% – the lowest this year Indian inflation is likely to have continued to slow in November, with annual wholesale prices predicted to fall to 7.5% – the lowest this year – from 8.6% in October. The RBI, after raising interest rates six times already this year, has some breathing room (we expect no change to policy at this week’s rate-setting meeting) but it is very much ‘wait and see’. Domestic demand is holding surprisingly firm and given rising global commodity prices, underlying upward pressures remain significant. It is difficult to rule out further interest rate hikes early next year, as the target of slowing inflation to between 4% and 4.5% appears challenging in the face of likely continued above trend economic growth (~8%). We forecast the benchmark repo rate to reach 7% by mid-2011, possibly higher.

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