Ritu Arora, chief investment officer, Canara HSBC OBC Life Insurance, tells Krishna Merchant that the Reserve Bank of India (RBI) may raise interest rates by 50-75 basis points in 2011. Edited excerpts:
How do you see markets panning out in the near term?
While there are some geopolitical concerns in Korea, bigger concerns are financial in nature, such as the growth rate in the US and sovereign defaults in the EU.
In the US, corporate profits are stronger than most expectations and continue to surprise on the upside. Economic data like industrial production and gross domestic product are showing improvement, while property prices are also stabilising. The only worry is the unemployment rate, which is stuck at 9.5-9.6 per cent.
Do you think we need to worry as regards China?
We believe China is taking steps in the right direction and is in control of the economy. Though markets there have been worried about high inflation, one should note that about 75 per cent of the Consumer Price Index inflation this year has come from food, with fresh vegetables and fruits being the key drivers.
Do you expect RBI to raise interest rates in future?
There is every reason for a rate rise in January. Inflation is quite sticky at 7.45 per cent. We do not see RBI meeting its inflation target of 5.5 per cent, which makes it tricky for the government to choose between inflation and growth.