‘Sun Worldwide’- Worldwide Economics– (Shock Indian Rate Hike)...

March 23, 2010 - PRLog -- “Sun Worldwide” analysts have told clients that market reactions to the surprise hike in Indian interest rates were knee-jerk and unjustified.

The firm apparently believes that the move should be regarded as a responsible and prudent step to ensuring the sustainability of the recovery In the world’s second most populous country.

“Sun Worldwide” analysts suggested that the threat of inflation is a particularly politically-sensitive issue on account of the fact that nearly three quarters of the 1.2 billion population lives on less than the equivalent of $2 a day.

Industrial output in India grew by 16.7% in January and this was cited by the Governor of the Reserve Bank of India, Duvvuri Subbarao, as a contributing factor to the decision to raise rates.

India’s economy is expected to grow by 8.2% in the next fiscal year compared to 7.2% in the year to 31 March 2010.

‘Sun Worldwide’ analysts told clients expecting monetary tightening in the US or Europe that it was unlikely that either region would be in a position to tighten until such time as there were positive gains in both output and employment numbers. Nevertheless, the analysts concluded, there was a distinct possibility that markets could force rates up once pauses in quantitative easing had fed through to bond markets which would quickly become saturated with sovereign debt issuance.