RBI may signal tightening interest rates by year-end: Moody's

The Reserve Bank of India (RBI) could signal tightening of interest rates before the end of the current year as the country is facing inflationary pressures mainly due to drought conditions, Moody's said.

"The RBI could begin raising its repo (short-term lending) and reverse repo (short-term borrowing) rates before the end of the year, although it is likely to wait until the start of 2010," Moody's arm Moody's economy.com said in a report.

It said that inflationary pressures are elevated because of drought conditions in key agricultural areas, exacerbated by the weakest monsoon season in decades.

"Inflation has also been stoked by government measures, such as "minimum support prices" to maintain agricultural prices and protect farmers. This is partly why food prices are soaring," it added.

Wholesale Inflation marginally declined to 0.70 per cent for the last week of September against 0.83 per cent in the previous week.

The Reserve Bank would come out with its second quarterly review of credit policy on October 27.

Moody's further said that Finance Minister Pranab Mukherjee said that wholesale price inflation could reach 6 per cent by the end of the current fiscal.

The RBI has projected inflation to rise to 5 per cent by March-end next year.