Inflation in India is running at a three year high.

India’s inflation has accelerated which has raised the cause for concern that the central bank may increase interest rates as government bonds fell.

Wholesale food prices have surged by 7.41 percent from last year and it is the rise in commodities and food costs that has forced the Asian governments to find ways to freeze the price hikes.

The Indian government is having to scrap import tax on oils and maize as well as banning all exports of rice and pulses due to the increase in food prices.

Oil is trading at the astronomical price of $112.21, whilst wheat is trading at $13.495 a bushel which is almost double the price from last year.

As a result the central bank may order lenders to make more money available, and the government cannot rule out an increase in the cash reserve ratio.

The focus on monetary policy will most likely be on liquidity management so as to stop this influencing inflation.

During the week India has conducted the biggest sale of debt since this January so as to reduce the supply of money.

The Indian central bank is subsequently planning to sell 230 billion rupees of bonds this week, as well as 90 billion rupees of securities in order to further reduce the money supply in the banking system.

So far key policy rates have been lifted nine times in order to curb inflationary pressures.

Story link: Inflation in India is running at a three year high.