India Tightens Monetary Policy

In its first step toward tightening monetary policy, The Reserve Bank of India held interest rates steady and required banks to set aside more bonds as reserves, reports The Wall Street Journal.


According to the newspaper, the central bank's move to increase the statutory-liquidity ratio won't affect the banking system's liquidity -- which analysts say if left too loose could threaten to magnify inflationary pressures and undercut India's early recovery -- but it sends a strong signal that a reversal of its loose stance has started.


The Journal adds that India's economy has been one of the most resilient in a region that has led the global recovery, and signs that inflation will pick up in the months ahead appear to be a growing concern for the RBI. It lifted its inflation-rate estimate for the fiscal year ending March to 6.5%, with an upward bias, from a previous forecast of 5%.


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