India inflation above the level of tolerance " Subbarao said before the meeting Rates

India's inflation remains above "tolerance", central bank governor Duvvuri Subbarao said before the monetary policy announcement next week.

"Inflation is falling but still above RBI's tolerance level," Subbarao told reporters in the eastern city of Calcutta, India yesterday. Inflation India's benchmark wholesale prices cooled to a nine-month low of 8.58 percent in October. The Reserve Bank of India aims to curb inflation to between 4 percent and 4.5 percent.

The central bank said on 02 November that it probably will not raise interest rates until January, taking time to see the impact of six increases in interest rates this year. A liquidity crisis in banks after companies like Coal India Ltd. raised funds selling shares can also Subbarao system to keep borrowing costs unchanged for the time, said Shubhada Rao, chief economist at Yes Bank Ltd . in Mumbai.

"The message is that the RBI remains vigilant on inflation," said Rao. "The RBI will keep rates at its meeting on 16 December, and he expects to see the impact of previous rate hikes on inflation."

Yields Drop

The yield on the 10-year bond fell three basis points to 7.8 percent at 2:03 pm in Mumbai after Subbarao today said the central bank was "fully aware" of the liquidity situation in banks.

Commercial banks borrowed an average of 800.7 billion rupees ($ 17,700,000,000) this quarter using the window of the RBI's repurchase auction, compared with 239 million rupees in the last three months .
"We are studying the issue and we will take steps that are necessary, but I can not say what and when," Subbarao told reporters in Calcutta after a meeting of central bank board. "We expected the government's cash balances would collapse and easing the liquidity situation. As much as the government has begun to happen, that has not been on a scale large enough to ease the liquidity situation."

The central bank said on December 6 today it will buy back bonds due in 2016, 2017, 2020 and 2022 to pump money into the banking system.

The rupee weakened 0.2 percent to 45.16 against the dollar, while the Bombay Stock Exchange sensitive index decreased 1.9 percent, at 19,316.31.

Policy Guidance

The deputy Subir Gokarn told reporters in Calcutta that the central bank is signaling a change in the orientation of monetary policy due to the liquidity crisis. He said rising global commodity prices may complicate the management of inflation.

Food inflation in India has accelerated to 8.69 percent in the week ended Nov. 27 about a 1/2-year minimum of 8.6 percent in the previous week, the Ministry of Commerce, said in a announced today in New Delhi.

The Reserve Bank on November 2 increased the repurchase rate by a quarter percentage point to 6.25 percent and the reverse repurchase rate by the same margin to 5.25 percent. Inflation is forecast to slow to 5.5 percent on March 31.