India must tread careful path between growth, inflation fight

India must balance any measures it uses to control rising prices with any risks they pose to economic growth in the wake of the European debt crisis, Finance Minister Pranab Mukherjee indicated.

Inflation in India "is a matter of concern," Mukherjee said in an interview in Washington yesterday.

"I do hope that the steps we've taken both on the demand side and supply side will have a moderating influence," he said.

India's benchmark wholesale-price inflation unexpectedly accelerated 10.16 per cent in May from a year earlier, near the fastest pace in 17 months, government data showed.

The Reserve Bank of India said it would raise interest rates in a "calibrated" way given the cash squeeze in the economy and the threat posed by Europe's crisis, Governor Duvvuri Subbarao said June 18.

"It is a matter of time" before the central bank increased rates, said Shubhada Rao, chief economist at Mumbai's Yes Bank.

"The central bank is waiting for normalcy in the liquidity situation before raising rates."

Cash crunch

Indian lenders are short of cash after telecommunication companies including Bharti Airtel paid $14.6 billion in licence fees for wireless phone services and businesses withdrew money for taxes.

The next monetary policy announcement was scheduled for July 27.

The Reserve Bank has increased rates twice since mid-March in a bid to control prices.

Overnight interbank rates advanced to 5.3 per cent in Mumbai yesterday, higher than the repurchase rate of 5.25 per cent at which lenders borrow from the central bank.

"We shall have to strike a balance between these two situations," Mukherjee said, referring to economic growth and the acceleration in prices.

"We are watching the situation," he said. Commenting on any interest rate change would be "premature" the minister said.

India's inflation may slow to about five per cent by March, the finance minister said this week.

The country's $1.2 trillion economy expanded 8.6 per cent in the three months through March from a year earlier, the fastest pace after China and Brazil.

The nation's growth rate may reach "8.5 per cent plus" this year and nine per cent next year, Mukherjee said yesterday.

Expansion in manufacturing and services had "contributed substantially to the higher growth".

Four things that drain your cash

Have you ever given much thought to the real cost of an item, compared to the listed retail price? A perfect example is if you chose to buy a new computer on credit. The real cost of the computer would be the purchase price and the interest that you have to pay.

The true cost of an item can often go unnoticed and consumers end up paying much more than they bargained for. Here are four things that are more expensive than you might think.

Active trading

You might believe that it would be exciting to become a daytrader because you can get rich by aggressively buying and selling stocks. All you have to do is buy an investment and sell it for more than you paid. That sounds pretty easy!

So, should you start actively trading your account in hopes of getting rich? Not if you want to hold onto your hard-earned money. The only person who is guaranteed to get rich from your constant buying and selling is your stockbroker.

Brokerage firms absolutely love customers that actively trade their account. The brokerage firm makes money regardless of whether a stock increases in value or decreases because they charge commissions on every buy and sell order.

You could end up paying thousands of dollars a month in commissions, just for the privilege of trading stocks. Once you see how quickly these commissions eat up your investment return, you won't be in such a rush to quit your day job.

Refinancing

Refinancing theory says you can get some extra cash by taking the available equity out of your house by extending the years on your payments. Sounds great! Who couldn't use some extra cash to pay off credit card debt or refinish the basement? Not so fast!

Refinancing can cost you more than you think. Not only are you extending your mortgage obligation for more years; you are also draining the equity out of your home. As the recent financial crisis showed, housing prices are not guaranteed to increase. When housing prices drop precipitously as they have over the past few years, you could find yourself owing more money on your new loan than your house is even worth.

Late fees

Late fees are like little pests that drain your finances and rob you of financial freedom. Creditors are famous for adding late fees to any bill paid after the due date. Late fees may be added to a bill that is one hour late, one day late or one week late.

Credit card companies can charge high fees for late payments, in addition to the interest. Add these little late charges together, and you could be losing hundreds of dollars a year. Over a 30-year time period, you could easily be losing thousands of dollars to late fees.

Credit card purchases

Credit card purchases should come with the following cautionary warning: This purchase will cost you more than the price advertised! Most credit card users end up paying way more than the stated purchase price. The only exceptions are people who pay their bill in full each month.

Small purchases may not appear to be a big deal initially, but over time these little items will end up costing you more than you think.