India and Australia raised interest rates on Tuesday amid rising inflation fears as the US Federal Reserve prepared to take aggressive monetary policy action to stimulate the stuttering US economy.
Although both countries’ central banks cited domestic pressures on inflation as the main reason for the rises, the Reserve Bank of India also drew attention to fears that a new round of quantitative easing in the US and elsewhere could flood emerging markets with fresh capital inflows, putting further pressure on rising asset prices.
“While the ultra-loose monetary policy of advanced economies may benefit the global economy in the medium term, in the short term it will trigger further capital inflows into emerging market economies and put upward pressure on global commodity prices,” said Duvvuri Subbarao, the central bank governor.