Exchange traded funds that invest in India have been under pressure this week after the country’s central bank raised interest rates as it tries to quell inflation.
The Reserve Bank of India boosted rates more than expected earlier this week. “Policy needs to persist with a firm anti-inflationary stance,the central bank said, adding while economic growth had moderated, “there is no evidence of a sharp or broad-based slowdown as yet,” The New York Times reported.
“I don’t think this is the end of the tunnel,” Finance Minister Pranab Mukherjee said, reported by The Wall Street Journal. “We will continue to take monetary and fiscal steps to control inflation,” he told reporters.
Food prices are showing the most inflation at 8%, and core inflation, which excludes food and oil, is increasing. The rate was at 9.44% for June. The Reserve Bank of India recently decided to raise its lending rate 0.50%, and is ready to take further action if inflation does not recede. The Reserve Bank has raised rates 11 times since March 2010. [This Sector Could Power India ETFs in 2011.]
Meanwhile, India’s government is planning to boost spending on health care and food, possibly adding to the inflationary pressure, as funds are not readily available. [India ETFs Jump This Week.]
Kartik Goyal for Bloomberg reports that an expansion of health insurance programs to the poor is in the plan, along with the idea to guarantee wheat and rice supplies at subsidized prices to about 70% of India’s population, or 1.2 billion people. [ETF Chart of the Day: India.]
“Essentially we have a re-balancing of expenditure towards government spending and away from investment, which is the classic textbook crowding out that’s clearly a problem,” India Deputy Governor Subir Gokarn said, according to the Bloomberg report. “And if you’re squeezing investment that is also impairing long term growth potential.”
ETFs that track companies in India include:
- WisdomTree India Earnings Fund (NYSEArca: EPI)
- PowerShares India (NYSEArca: PIN)
- iShares S&P India Nifty Fifty (NasdaqGM: INDY)
PowerShares India
Tisha Guerrero contributed to this article.