India raises interest rates

Yet another Asian central bank tightens monetary policy. AFP/CNA reports:

India's central bank hiked two key short-term interest rates for the second time in a month Tuesday as it tries to rein in "worrisome" inflation that is approaching double digits.

The Reserve Bank of India raised the repo -- the rate at which it lends to commercial banks -- by 25 basis points to 5.25 percent and the reverse repo, the rate it pays to banks for deposits, by the same amount to 3.75 percent...

Wholesale price inflation, India's main cost-of-living measure, which is at 9.90 percent, is well above the bank's 5.5 percent target for the financial year ending March 2011.

Also on Tuesday, Bloomberg reports that Canada may become the first G-7 country to raise interest rates.

The Bank of Canada signaled it may be first in the Group of Seven to increase borrowing costs, joining other countries such as India and Australia, as economic growth accelerates and stokes inflation.

In its decision today to leave the lending rate at a record low 0.25 percent, policy makers dropped a phrase about a “conditional commitment” to keep it unchanged until July unless the inflation outlook shifted. The bank said inflation will be “slightly higher” than its 2 percent target over the next year, and increased its 2010 economic growth forecast to 3.7 percent from 2.9 percent.

A rate hike from Sweden may not come so soon though. Bloomberg reports:

Sweden’s Riksbank kept its benchmark rate at a record low and repeated plans to put off tightening until July at the earliest after the government cut the economic growth outlook and said more stimulus was needed.

The Stockholm-based central bank kept the seven-day repo rate at 0.25 percent and reiterated a forecast that it won’t raise the rate until “summer or early autumn,” according to a press release on its Web site today. The rate decision was expected by all 19 economists surveyed by Bloomberg.

The Bank of England is also unlikely to raise rates soon, but after Tuesday's inflation report, some may be starting to wonder why. From Reuters:

Annual consumer price inflation rose more than expected in March, pushed up by higher petrol prices and air fares, as well as by household gas bills, which failed to repeat last year's record drop.

The Office for National Statistics on Tuesday said consumer price inflation increased to 3.4 percent last month from 3 percent in February, well above the Bank of England's 2 percent target and economists' expectations of a rise to 3.2 percent.

In any case, if central banks don't raise rates, markets can do so on their own, as Greece is finding out. Again from Reuters:

Greek borrowing costs hit a 12-year high on Tuesday as Athens prepared to launch talks on an EU/IMF bailout package aimed at rescuing Greece from a debt crisis rocking the euro zone...

Finance Minister George Papaconstantinou said Greece would decide whether to trigger the aid mechanism or tap markets depending on borrowing costs and the progress of negotiations.

He said there was "no chance" the country would fail to cover its borrowing needs for May, after it paid a euro lifetime high of 3.65 percent earlier on Tuesday to attract buyers for 1.95 billion euros of 13-week T-bills...

At the opposite end of the curve, the premium investors' demand to buy Greek government bonds rather than euro zone benchmark Bunds also rose to a 12-year high, debt officials said, widening to 492 basis points.