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The European Central Bank will keep interest rates at a record low for more than a year and may yet need to expand its use of unconventional tools as it battles the worst recession since World War II, economists said.

ECB officials meeting in Luxembourg today will leave the benchmark rate at a record low of 1 percent, according to all but two of 60 economists in a Bloomberg News survey. The central bank, led by President Jean-Claude Trichet, may keep the rate there until the fourth quarter of 2010, a separate survey shows.

The ECB last week lent banks a record 442 billion euros ($621 billion) for 12 months at its key rate in the hope they will pass on cheaper credit to companies and households. It will also start buying 60 billion euros of covered bonds this month to encourage lending. Trichet may today unveil further details of the plan, which was a compromise after policy makers failed to agree on a package twice that size.

“The ECB is pretty much done with cutting rates,” said Guillaume Menuet, an economist at Bank of America-Merrill Lynch in London. “However, they are very concerned about credit developments. If there is no improvement by October, the debate about expanding the asset purchases will resurface.”

The ECB, which holds Governing Council meetings twice a year away from its Frankfurt headquarters, announces its rate decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later.

Close to Zero

The central bank for the 16-member euro region has been reticent to follow the examples of the U.S. Federal Reserve, Bank of England and Bank of Japan, which have lowered their main rates to close to zero and are buying government and corporate bonds to reflate their economies.

The ECB, whose key rate is still the highest among the Group of Seven nations, has focused instead on getting credit flowing through the banking system again, arguing that two thirds of its economy is financed by banks.

Even so, loans to households and companies in the euro area grew at the slowest pace on record in May as the recession crimped demand for debt and prompted banks to tighten credit standards.

While the ECB’s measures have stabilized the banking sector, “they have not, at this stage, succeeded in pushing credit into the real economy,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London instant payday loan. That could be achieved by buying corporate bonds, he said.

Original Plan

The ECB initially considered a package of asset purchases worth 125 billion euros that included corporate bonds and commercial paper, according to people briefed on the talks. Germany’s Axel Weber opposed buying assets of any sort. Other ECB officials, such as Athanasios Orphanides from Cyprus, have said more may need to be done to temper the risk of deflation.

Consumer prices fell 0.1 percent in June from a year earlier. That’s the lowest inflation rate Europe has seen since 1953, according to Royal Bank of Scotland. The ECB predicts the euro-region economy will contract about 4.6 percent this year.

“The primary goal should be to restore economic growth as fast as possible,” ECB council member Ewald Nowotny said at a conference on June 16. “It is necessary to use all possible means to secure a recovery,” he said in a June 19 interview, adding he expects interest rates to stay on hold into 2010.

Inflation Concern

Some policy makers are more worried that the stimulus being provided by central banks and governments will sow the seeds of future inflation. Deflation risks “are extremely limited,” ECB Executive Board member Juergen Stark said June 25. The bank will “swiftly” withdraw additional liquidity when the economy improves, he said.

There are signs that the worst of the recession may be over. The contraction in Europe’s services and manufacturing industries is slowing and confidence in the economic outlook rose to a seven-month high in June.

“The economy certainly won’t prompt any more ECB action for now,” said Aurelio Maccario, chief euro-area economist at Unicredit Group in Milan, who expects the ECB to keep rates on hold until the end of 2010. “However, if credit flows don’t start improving, Trichet will have to put his thinking cap on again in a few months.”

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Home prices in 20 major metropolitan areas probably fell in April at about the same pace as in prior months as foreclosures climbed, economists said ahead of a report today.

The S&P/Case-Shiller home-price index fell 18.6 percent from a year earlier following an 18.7 percent drop in March, according to the median of 33 forecasts in a Bloomberg News survey. Another report may show consumer confidence rose to a nine-month high in June.

The highest jobless rate in 25 years is contributing to record foreclosures, which are likely to depress values for months to come even as home sales steady. The loss of wealth associated with the decline in property prices is one reason Americans are saving more, leading to a slowdown in spending that will restrain an economic recovery.

“The market will likely remain out of balance for some time given the flood of foreclosures,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “Home prices are likely to continue to fall, albeit at a slowing pace, even after the economy technically emerges from the recession.”

The S&P/Case-Shiller gauge is due at 9 a.m. New York time. Estimates in the Bloomberg survey ranged from drops of 17.7 percent to 19.4 percent. The index dropped 19 percent in the year ended in January, the most since records began in 2001.

Gaining Confidence

At 10 a.m., a report from the New York-based Conference Board may show its index of consumer confidence rose to 55.3, the highest since September, from 54.9 in May, according to the Bloomberg survey. Estimates ranged from 60 to 51.5. The measure set a record low in February.

The home-price index figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

Foreclosure filings, including default and auction notices as well as property seizures, climbed 18 percent in May from a year earlier, according to Irvine, California-based RealtyTrac Inc. The number topped 300,000 for the third consecutive month, with an estimated one in every 398 homes in some stage of foreclosure fast cash savings account.

The drop in prices caused by the seizures is helping stabilize home sales. Home resales climbed 2.4 percent in May to an annual pace of 4.77 million as the median sales prices slumped 17 percent, the third-largest decrease on record, the National Association of Realtors reported last week.

Distressed Areas

About 73 percent of all existing houses and condos sold in the Las Vegas-Paradise area were foreclosures last month, up from 56 percent a year earlier, according to figures from San Diego-based MDA DataQuick. Such sales accounted for 51 percent of all existing-home transactions in California, up from 40 percent a year ago, the research company said last week.

Declines in home values and stock prices destroyed a record $13.9 trillion in household wealth since late 2007, according to figures from the Federal Reserve.

The need to repair the damage will cause consumers to remain frugal, signaling the biggest part of the economy will be slow to recover. The savings rate climbed to a 15-year high of 6.9 percent last month, after reaching zero as recently as April of last year.

While the rise in foreclosures is likely to keep hurting prices, some companies are seeing signs demand is stabilizing.

More Sales

Lennar Corp., the third-largest U.S. homebuilder, said last week that home deliveries and new orders rose 47 percent and 67 percent, respectively, in the second quarter from the previous three months. Chief Executive Officer Stuart Miller said the housing market “experienced an uptick in sales” in the quarter while not yet recovering from the slump.

“While we are sensing pent-up demand in the market, rising unemployment, increased foreclosures and tighter credit standards continue to present challenges for the industry,” Miller said in a June 25 statement. “This combined with a recent spike in mortgage rates has made it difficult to predict when the market will ultimately turn the corner.”

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New Zealand’s exports increased in May and home-building approvals rose for the third time in four months, adding to signs the economy may emerge from its deepest recession in more than three decades.

Exports climbed 5.8 percent from a year earlier, narrowing the annual trade deficit to the smallest in more than five years, Statistics New Zealand said in Wellington today. Home-building approvals advanced 3.5 percent from April, it reported.

A pickup in overseas shipments and an improvement in the housing market will help revive an economy that shrank 1 percent in the first quarter. Reserve Bank Governor Alan Bollard, who this month kept the benchmark interest rate at a record-low 2.5 percent, expects growth to return in the fourth quarter of 2009.

“The rate of contraction in the economy likely eased significantly in the second quarter,” said Darren Gibbs, chief economist at Deutsche Bank AG in Auckland. “While many nations have reported a huge decline in export receipts since late last year, the report highlights the relative resilience of New Zealand’s export sector.”

New Zealand posted a trade surplus of NZ$858 million ($552 million) in May, or more than three times the NZ$250 million expected by economists. The deficit in the year ended May narrowed to NZ$3.04 billion.

The NZX 50 stock index rose 0.5 percent to 2,784.58 as of 12:55 p.m. in Wellington. The New Zealand dollar traded at 64.47 U.S. cents from 64.54 cents before the figures were released. The five-year bond yield was unchanged at 4.87 percent.

Global Outlook

The outlook for New Zealand commodity exports is improving as the world’s largest economies emerge from recession. Japan’s industrial output jumped 5.9 percent in May, a pace that matched the steepest increase in 56 years, a report showed today.

The Organization for Economic Cooperation and Development last week raised its forecast for the economy of its 30 member nations for the first time in two years.

New Zealand fell into a recession in the first quarter last year. Finance Minister Bill English said last week he wants overseas shipments, which make up 30 percent of gross domestic product, to lead the recovery.

Exports rose to NZ$3.96 billion in May from a year earlier, led by a gain in sales of whole milk powder, logs, lumber and kiwifruit, the statistics bureau said free car insurance quotes. Commodity prices rose for a third month in May, according to an ANZ National Bank Ltd. index.

Still, the trade report also showed imports tumbled 21 percent from a year earlier to NZ$3.1 billion. The decline was the largest since February 1993 and was led by fewer imports of crude oil, gasoline and passenger cars.

Weak Economy

Demand for imports has tumbled as companies cut investment and as the highest unemployment rate in six years prompted consumers to reduce spending.

“The bulk of the turnaround in overseas trade is due to the import collapse” amid the weakness in domestic demand, said Annette Beacher, a senior strategist at TD Securities Ltd. in Singapore.

New Zealand’s monthly trade figures don’t adjust for prices. The value of oil imports fell 33 percent as prices slumped 30 percent, today’s report showed.

Business confidence slumped to an all-time low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Investment intentions dropped to the lowest level on record, the Wellington-based institute said.

The jobless rate rose to 5 percent in the first quarter and may reach 8 percent by late 2010, curbing demand for imported computers and cars as consumers rein in purchases, according to the Treasury Department.

Rate Cuts

To revive demand, Bollard has cut the benchmark interest rate by 5.75 percentage points since July. Investment in housing contracted for a seventh straight quarter in the three months ended March 31, a government report showed last week.

House sales increased 44 percent in May from a year ago, according to Real Estate Institute figures published June 11.

While the number of home-building approvals climbed in May from January’s record low, it mainly has been boosted by apartments being built at retirement villages. Excluding apartments, approvals fell 3.1 percent from April and the underlying trend remains negative.

There were 275 apartment approvals in May, accounting for 22 percent of total approvals. Over the past year, apartments have averaged about 11 percent of the total.

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The number of Americans filing for initial unemployment insurance rose unexpectedly last week, to the highest level in more than a month, according to government data released Thursday.

There were 627,000 initial jobless claims filed in the week ended June 20, up 15,000 from a revised 612,000 the previous week, the Labor Department said.

The number was above the consensus estimate of 600,000 from economists surveyed by Briefing.com.That’s the highest level of initial claims since the week ended May 16, when 636,000 were filed.

Despite the increase, economist Ian Shepherdson of High Frequency Economics said he still believes "the underlying trend in claims is downwards, but it is slow and uneven."

The 4-week moving average of initial claims was 617,250, up 500 from the previous week’s revised average of 616,750.

Continuing claims: The government said 6,738,000 people continued to file unemployment claims in the week ended June 13, the most recent data available.

That’s up 29,000 from the preceding week’s revised 6,709,000 ongoing claims payday advance lenders.

The 4-week moving average of continuing claims fell to 6,759,750, down 3,250 from the prior week’s revised average of 6,763,000.

State-by-state data: In the week ended June 13, the most recent data available, 14 states reported that initial claims decreased by more than 1,000.

Michigan had 5,414 fewer initial claims, which a state-issued comment attributed to fewer layoffs in the automobile industry.

A total of 6 states reported new claims increased by more than 1,000. Florida reported the most new claims, at 8,383, which a state-supplied comment attributed to layoffs in the construction, trade, service and manufacturing industries.

Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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Chairman Ben S. Bernanke’s grilling by legislators over Federal Reserve conduct in Bank of America Corp.’s takeover of Merrill Lynch & Co. may reduce the odds the central bank will win new powers in a regulatory overhaul.

Bernanke failed to resolve some lawmakers’ questions on whether the Fed bullied executives and stepped over other regulators in the name of financial stability in a three-hour congressional hearing yesterday. Republicans asserted the Fed interfered with commercial decisions, and Democrats said it should have wrung more concessions in return for taxpayer aid.

Criticisms by members of both parties are likely to diminish support for the Obama administration’s plan to make the Fed the single agency responsible for the largest and most interconnected financial institutions. The proposal, part of a broad revamp of bank regulation, would give the Fed power to dictate standards on capital, liquidity and risk management.

“It may be more important for us to find another systemic risk regulator,” Representative Paul Kanjorski, a Pennsylvania Democrat and member of the House Oversight Committee where Bernanke appeared, said in a Bloomberg Television interview after the hearing. Congress should “hesitate to put any more authority on the back of the Federal Reserve,” he said.

Representative Darrell Issa, the ranking Republican on the House panel, said the Fed’s actions “ought to be a note of caution to those who want to dramatically increase its power and authority.”

‘Highest Integrity’

Bernanke told the House Oversight Committee that Fed actions helped avert a financial meltdown that would have produced a “Depression-like environment” even more severe than the current recession. It acted with the “highest integrity” in talks on Bank of America’s acquisition of Merrill, he said.

His performance wasn’t enough to convince some lawmakers.

“There’s something rotten in the cotton here — no ifs, ands or buts about it,” Representative Edolphus Towns, a New York Democrat who chairs the House Oversight Committee, told reporters after the hearing. “There was a forced situation, a shotgun wedding” and “we’re just trying to find out who had the shotgun.”

Still, no congressional leader has drawn a connection to prospects for Bernanke’s renomination, and Robert Gibbs, the White House press secretary, yesterday said President Barack Obama “has confidence” in the Fed chief.

Obama said in a news conference earlier in the week that the Fed chief has “done a fine job under very difficult circumstances.” He declined to answer a question about whether he would reappoint Bernanke, whose term ends in January.

‘Judged Fairly’

Issa also said, referring to Bernanke in a Bloomberg Television interview, that on monetary policy “I think he will be judged fairly.” Assessing the emergency actions by Bernanke, former Treasury Secretary Henry Paulson and other top officials, he said, “I’m sure that they will get a C or better faxless payday loans.”

The Fed chairman is a Great Depression scholar who has pioneered research on how financial systems can worsen economic downturns. He has told Congress that the Fed’s emergency actions were aimed at saving average citizens on Main Street rather than Wall Street bankers. Bernanke and Paulson successfully lobbied Congress to use $700 billion of taxpayer funds to support the largest U.S. banks.

Lawmakers from both parties, while praising Bernanke’s dedication to ending the financial turmoil, have questioned the central bank’s use of emergency powers and supervisory authority during the crisis.

Emergency Loans

The Fed’s emergency loans helped expand the balance sheet by $1.13 trillion over the past year to $2.03 trillion. The Obama plan would check that authority, requiring the central bank to obtain written permission from the Treasury before making such loans. The Fed announced yesterday that it will let one of its emergency programs expire and trim two others in a first step toward ending its unprecedented interventions.

The hearings also raise questions about whether the Fed can simultaneously supervise big financial institutions while steering the economy toward full employment and low inflation. In the U.K., financial regulation and monetary policy are handled by separate institutions.

At the hearing yesterday, Representative Dennis Kucinich, a Democrat from Ohio, read what he said was an e-mail from Boston Fed President Eric Rosengren to Bernanke suggesting that the Fed chief not rule out removing top executives.

“‘The U.K. replaced senior management’” of the Royal Bank of Scotland Group Plc, Kucinich said, reading what he said was an e-mail written by Rosengren. “‘The bank is maintaining operations without significant disruptions. I would not want to discard this option.’”

Government Bailout

RBS ousted Chief Executive Officer Fred Goodwin in October and turned over control to the government in exchange for a bailout. Goodwin presided over the biggest loss in U.K. corporate history following the acquisition of ABN Amro Holding NV.

Bank of America Chief Executive Officer Kenneth Lewis told the House committee earlier this month that he decided to proceed with the takeover of Merrill after regulators said they might remove management and because his company’s future was “intertwined” with Merrill’s fate.

Bernanke said at the hearing yesterday he didn’t threaten Lewis that he’d be fired if the bank withdrew from the Merrill deal.

The Fed chairman has “probably spent a week or 10 days preparing for this, which is not his job,” said Scott Pardee, a former New York Fed official who now teaches at Middlebury College in Vermont. “Having the chairman of the Federal Reserve in the middle of this diverts from the basic monetary policy job that he has to do.”

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Apple Chief Executive Steve Jobs showed up for work Monday and was spotted leaving the main corporate campus in Cupertino, California, a Reuters witness said.

Speculation had mounted in past days that Jobs had returned to the company he co-founded more than 30 years ago, and emerged after a nearly six-month medical leave.

On Monday, he was seen leaving the main Apple building in Cupertino, California and getting into a black car alone that was then driven off by men in black suits with ear-pieces health insurance for self employed.

The Wall Street Journal reported that Jobs, 54, underwent a liver transplant in Tennessee while on leave. The company has declined to comment on the report.

Jobs is viewed as the key visionary driving the company’s product development and the mastermind behind iconic products such as the iPod and the iPhone. 

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French business confidence rose for a third month in June, suggesting demand for manufactured goods in the euro-region’s second-largest economy may be rebounding and the economic slump easing.

An index of sentiment among 4,000 manufacturers rose to 75, from a revised 73 in May, Paris-based statistics office Insee said today. That was more than the median forecast of 74 by 16 economists in a Bloomberg News survey. The gauge fell in February to 68, the lowest since the data began in June 1962.

“We are still in the phase of recovery, rather than real positive growth,” said Joost Beaumont, an economist at Fortis Bank NV in Amsterdam. “But we are seeing these green shoots, including in Asia, in the U.S.” He expected French confidence to rise to 74.

President Nicolas Sarkozy has introduced about 30 billion euros ($41.6 billion) in tax cuts and spending that aim to pull the economy out of the deepest slump since World War II, inflating the deficit and debt to records. Finance Minister Christine Lagarde said she was cautious about signs that the recession was easing. Europe’s third-largest economy has contracted for four straight quarters, pushing the jobless rate to more than a two-year high fast cash advance.

The gain in business confidence contrasted with signs of slumping optimism among consumers. French household spending unexpectedly fell 0.2 percent in May and plunged 1.6 percent from a year earlier, a separate Insee report showed today.

Record Deficit

The government expects the economy to contract 3 percent this year before growing 0.5 percent in 2010 and the budget deficit may widen to between 7 percent and 7.5 percent of gross domestic product this year, a record and more than twice the European Union limit.

French manufacturers showed renewed optimism on overall production as the indicator surged to minus 40 from a revised minus 50, Insee said. They are less pessimistic about their own production outlook with that reading improving to minus 18 from a revised minus 28. Outlook on order books showed manufacturers expect them to remain low with that measure falling to minus 70 from minus 69 a month before.

The May business confidence reading was revised to 73 from the 72 initially reported, while the manufacturers’ own- production outlook was revised in May from minus 29.

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Asia can start discussions on a shared currency to avoid “intra-regional exchange rate complications,” Asian Development Bank President Haruhiko Kuroda said today.

“I hold the view that we can start discussions and seriously discuss this issue,” he said at a public lecture in Singapore. “Although it may take decades, eventually I think we may be able to establish a common currency.”

Asian governments have been debating the merits of a shared currency since the region’s economies were rocked by a financial crisis a decade ago. The 10-country Association of Southeast Asian Nations, or Asean, is proceeding with efforts to create an economic zone modeled after the European Union, without a common currency, by 2015.

“Creating a common currency does involve overcoming hurdles,” Kuroda said. These include the need to have a common market, some harmonization of macroeconomic policies, a regional central bank that would require regional countries give up their currencies and independent monetary policies, he said.

Asean members agreed with Japan, China and South Korea in May to start a $120 billion foreign-currency reserve pool by year-end, to be used in times of turmoil as the region sought ways to shield its economies from the worst global recession since the Great Depression.

The pool, an expansion of an existing framework of bilateral currency swaps, widens access to foreign-exchange reserves and will allow nations such as Indonesia and Thailand, recipients of International Monetary Fund bailouts a decade ago, to defend their currencies business cards for sale.

Chiang Mai Initiative

Kuroda said he was “quite confident” that talks on expanding the so-called Chiang Mai Initiative will be completed by the end of this year. Countries outside Asean and the three northern neighbors may participate in the initiative in the future, he said.

Asian countries must increase communication on their foreign exchange policies as currency volatility can affect regional financial systems, Kuroda said, without elaborating. Establishing a mechanism to monitor regional currency movements would benefit the region, he added.

Kuroda doesn’t expect central banks that are large holders of dollar-denominated assets to sell out of those holdings, he said. The central banks are “locked in” because they would incur large losses by selling the dollar assets, he said.

The dollar’s status as the world economy’s sole reserve currency has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning U.S. budget deficit. Russian President Dmitry Medvedev this month proposed that nations use a mix of regional reserve currencies to reduce reliance on the dollar.

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India’s wholesale prices fell for the first time in three decades, making it more likely the government will unveil measures to stimulate demand in next month’s budget.

Wholesale prices declined 1.61 percent in the week to June 6 from a year earlier after gaining 0.13 percent in the previous week, the government said today. That’s the first drop since December 1978, according to the central bank’s monthly data. Economists expected a 1.52 percent contraction.

Inflation won’t stay negative for long, especially if Finance Minister Pranab Mukherjee uses his July 6 budget to stoke growth in Asia’s third-largest economy. Rising energy costs may cause inflation to accelerate to as much as 8 percent within a year, twice the central bank’s target, according to economist Robert Prior-Wandesforde.

Faster inflation “will almost certainly put paid to any chances of a further rate cut, which had already diminished significantly given the prospect of an expansionary budget,” said Prior-Wandesforde from HSBC Holdings Plc in Singapore.

Inflation has eased from a 16-year high of 12.91 percent in August last year, enabling the central bank to reduce interest rates to record lows to bolster an economy expanding at the slowest pace since 2003. The Reserve Bank of India last cut its key reverse repurchase rate by a quarter-point to 3.25 percent on April 21.

The central bank estimates that six interest-rate cuts in seven months and three stimulus packages will provide a combined stimulus to worth about 7 percent of gross domestic product to the $1.2 trillion economy.

Reversing Policy

Governor Duvvuri Subbarao said last month that it might be time to start thinking about reversing “expansionary” policies. The central bank’s next monetary policy statement is due to be released in Mumbai in late July.

Some economists expect Subbarao to start increasing borrowing costs by the end of this year or in early 2010, including Tushar Poddar at Goldman Sachs in Mumbai and Sailesh Jha at Barclays Plc in Singapore pay day loans.

India’s economy is already beginning to show signs that it may be emerging from the worst global slump since World War II.

Industrial production unexpectedly rose in April, increasing 1.4 percent from a year earlier, according to figures released by the statistics bureau on June 12. Economists were expecting a 0.1 percent contraction.

An index of composite leading indicators for the Indian economy compiled by the Organisation for Economic Cooperation and Development rose 0.4 point in April from the previous month, the first increase in 16 months.

‘V-Shaped Recovery’

The positive signals come on top of 5.8 percent GDP growth in the first quarter from a year earlier, which matched the pace of the previous quarter and beat the 5 percent median forecast of economists surveyed by Bloomberg News.

“Growth expectations continue to rise,” said Jha from Barclays. “We maintain our view that India will experience a V- shaped recovery in GDP growth and inflation during the second half of 2009.” Jha expects the central bank to raise its reverse repurchase rate by 50 basis points in the final quarter of this year.

The Reserve Bank of India looks at other inflation gauges besides the wholesale price index when deciding its monetary stance, according to Governor Subbarao.

Consumer prices paid by industrial workers rose 8.7 percent in April from a year earlier, after gaining 8.3 percent the previous month, according to government data.

India has four consumer price indices and uses the wholesale price index as the benchmark measure as the other inflation gauges don’t capture the aggregate price picture.

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India’s wholesale prices fell for the first time in three decades, making it more likely the government will unveil measures to stimulate demand in next month’s budget.

Wholesale prices declined 1.61 percent in the week to June 6 from a year earlier after gaining 0.13 percent in the previous week, the government said today. That’s the first drop since December 1978, according to the central bank’s monthly data. Economists expected a 1.52 percent contraction.

Inflation won’t stay negative for long, especially if Finance Minister Pranab Mukherjee uses his July 6 budget to stoke growth in Asia’s third-largest economy. Rising energy costs may cause inflation to accelerate to as much as 8 percent within a year, twice the central bank’s target, according to economist Robert Prior-Wandesforde.

Faster inflation “will almost certainly put paid to any chances of a further rate cut, which had already diminished significantly given the prospect of an expansionary budget,” said Prior-Wandesforde from HSBC Holdings Plc in Singapore.

Inflation has eased from a 16-year high of 12.91 percent in August last year, enabling the central bank to reduce interest rates to record lows to bolster an economy expanding at the slowest pace since 2003. The Reserve Bank of India last cut its key reverse repurchase rate by a quarter-point to 3.25 percent on April 21.

The central bank estimates that six interest-rate cuts in seven months and three stimulus packages will provide a combined stimulus to worth about 7 percent of gross domestic product to the $1.2 trillion economy.

Reversing Policy

Governor Duvvuri Subbarao said last month that it might be time to start thinking about reversing “expansionary” policies. The central bank’s next monetary policy statement is due to be released in Mumbai in late July.

Some economists expect Subbarao to start increasing borrowing costs by the end of this year or in early 2010, including Tushar Poddar at Goldman Sachs in Mumbai and Sailesh Jha at Barclays Plc in Singapore no fax cash loans.

India’s economy is already beginning to show signs that it may be emerging from the worst global slump since World War II.

Industrial production unexpectedly rose in April, increasing 1.4 percent from a year earlier, according to figures released by the statistics bureau on June 12. Economists were expecting a 0.1 percent contraction.

An index of composite leading indicators for the Indian economy compiled by the Organisation for Economic Cooperation and Development rose 0.4 point in April from the previous month, the first increase in 16 months.

‘V-Shaped Recovery’

The positive signals come on top of 5.8 percent GDP growth in the first quarter from a year earlier, which matched the pace of the previous quarter and beat the 5 percent median forecast of economists surveyed by Bloomberg News.

“Growth expectations continue to rise,” said Jha from Barclays. “We maintain our view that India will experience a V- shaped recovery in GDP growth and inflation during the second half of 2009.” Jha expects the central bank to raise its reverse repurchase rate by 50 basis points in the final quarter of this year.

The Reserve Bank of India looks at other inflation gauges besides the wholesale price index when deciding its monetary stance, according to Governor Subbarao.

Consumer prices paid by industrial workers rose 8.7 percent in April from a year earlier, after gaining 8.3 percent the previous month, according to government data.

India has four consumer price indices and uses the wholesale price index as the benchmark measure as the other inflation gauges don’t capture the aggregate price picture.

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