India's inflation accelerated to a 13-year high after record crude oil costs forced the government to raise retail fuel prices. Stocks and bonds fell on concern the central bank will have to raise interest rates again.
Wholesale prices jumped 11.05 percent in the week to June 7, after gaining 8.75 percent in the previous week, the government said in a statement in New Delhi today.
Economists said the central bank was likely to raise interest rates and possibly increase the cash reserve ratio to try to rein in inflation. Last week, the central bank unexpectedly raised its lending rate last week by 25 basis points to 8 percent.
The Reserve Bank of India's next scheduled policy review is on July 29, although it can, and does, change policy outside of its quarterly reviews.
The Bombay Stock Exchange's Sensitive Index, or Sensex, fell two percent to 14,801 in Mumbai. The yield on the benchmark 8.24 percent note due April 2018 rose 8 basis points to 8.62 percent as of 11:58 a.m. in Mumbai, according to the central bank's trading system.
The increase was not a one-and-done move and the Reserve Bank will follow up with more tightening,'' said Gunjan Gulati, an economist at JPMorgan Chase & Co. in Mumbai. ``We expect the bank to hike the repurchase rate and reverse repurchase rate by 25 basis points each in July and October.''
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