High commodity prices push inflation above target in India

For the third straight month, Indian inflation has been above the central banks target. This has raised concern that commercial lenders may be ordered to increase reserve. Should this come about, it would be the third time this year.

With the wholesale price rising Yaga Venugopal Reddy, governor of the Indian central bank, said on May 20, that India's current inflation rate was unacceptable and that the central bank is ready to respond in a swift manner. Last month the central bank unexpectedly raised the reserve requirement twice last month.

The possibility of inflation hitting double digits in the next few months, due to high prices of oil an other commodities, has increased the pressure to raise the cash reserve ratio and repurchase rate. With inflation being in the highest levels since September 2004, has increased concerns and the government is watching the situation closely and may take more steps to contain prices, should that be necessary. Finance minister Palaniappan Chidambaram urged patience and said measures already taken would help moderate inflation.