India’s central bank yesterday raised benchmark interest rates by 25 basis points, its sixth hike since the start of the year to curb rising inflation in the country’s booming economy.
The Reserve Bank of India (RBI) raised its main repo rate — the rate at which it lends to commercial banks — to 6.25 percent.
The reverse repo rate — the rate the Reserve Bank pays to banks for deposits — was increased to 5.25 percent.
The hikes were broadly in line with expectations and came after Indian Finance Minister Pranab Mukherjee on Monday said the continued rise in the cost of living was a “matter of concern” to the government.
However, the bank said it expected to hit the pause button on further rises.
“Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is -relatively low,” the Reserve Bank said in a statement.
Overall inflation was in double figures earlier this year, but has dropped to 8.62 percent.
Food price inflation though is still a worry and is running at 13.75 percent, despite good monsoon rains.
Headline inflation is still higher than the bank’s comfort zone of between 5 percent and 6 percent. Government estimates predict that inflation will fall to between 5 percent and 6 percent by the end of the financial year in March.
Economic growth is predicted to hit 8.5 percent in the current financial year and 9 percent in the following year.
Data this week showed manufacturing grew faster last month than in the previous month, although the cost of raw materials has risen markedly.
Policymakers say while food price rises remain a concern, inflation has also spread to other parts of the economy, such as commodities, fuel and metals.
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