India’s central bank yesterday raised its key short-term interest rates by 25 basis points — its 10th hike in 16 months — in a bid to tame high inflation stuck at “uncomfortable levels.”
The Reserve Bank of India (RBI) raised its repo rate — at which it lends to commercial banks — to 7.50 percent and increased the reverse repo — the rate it pays to banks for deposits — to 6.50 percent.
The repo rate is now at its highest since November 2008.
“Inflation persists at uncomfortable levels and much above our comfort zone,” the RBI Governor Duvvuri Subbarao said in a statement released after bank policymakers met in Mumbai.
The central bank decision came after data this week showed annual inflation accelerated to a higher-than-expected 9.06 percent last month, from 8.66 percent the previous month. This is well above the RBI target of 5 percent to 6 percent.
Subbarao maintained a hawkish tone, saying a short-run slowdown in growth may be unavoidable as the bank keeps its “anti-inflationary” monetary policy stance.
Economists say inflation has now spilled over into the general economy, pushing up wages and other costs.
“The headline inflation rate remains extremely sticky at around the double-digit mark,” said Robert Prior-Wandesforde, India and South East Asia economics head at Credit Suisse.
Reducing prices has become a political priority for the Congress-led coalition government in New Dehli, even as higher growth is seen as key to reducing crushing poverty. The government has delayed a decision to rise prices of diesel and kerosene, widely used in rural areas.
While inflation has remained stubbornly high, the series of rate hikes is starting to have an impact, with India’s economic growth slowing to 7.8 percent in the three months to March — its weakest pace in five quarters.
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