Arab Today, arab today india hikes rates by surprise 50 basis points
Last Updated : GMT 22:44:04
Arab Today, arab today
Arab Today, arab today

India hikes rates by surprise 50 basis points

Arab Today, arab today

Arab Today, arab today India hikes rates by surprise 50 basis points

Mumbai - AFP

India\'s central bank hiked interest rates by a higher-than-expected 50 basis points on Tuesday, its 11th increase since March 2010, as it struggles to combat near double-digit inflation. The Reserve Bank of India (RBI) raised its repo rate at which it lends to commercial banks to 8.0 percent and increased the reverse repo -- the rate it pays to banks for deposits -- to 7.0 percent. The repo rate is now at a near three-year high and the reverse repo is at its highest level in more than a decade, analysts say. India has the highest inflation of any major economy in Asia, running at almost 10 percent. Reducing prices has become a political priority for the Congress-led coalition in New Delhi, even as higher growth is seen as key to reducing crushing poverty in the nation of 1.2 billion. After a quarterly meeting of policy makers in the financial capital Mumbai, RBI governor Duvvuri Subbarao blamed the rate hikes on a range of factors, including higher fuel prices and rising non-food costs. \"Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance,\" he said. The benchmark 30-share index on the Bombay Stock Exchange fell 0.85 percent or 159.95 points to 18,711.34 after the announcement. Analysts had expected a rate rise after the RBI late Monday said in its macroeconomic and monetary review that it would maintain its anti-inflationary position. But most economists predicted a quarter percentage point rise. The bank has been on its longest streak of monetary tightening in a decade and is on record as saying that short-term economic growth may have to be sacrificed to fight inflation running at \"uncomfortable\" levels. Analysts believe at least one more rate increase is on the cards before the end of the calendar year. The central bank decision came after data showed the benchmark wholesale price index -- the government\'s most watched cost-of-living monitor -- accelerated to 9.44 percent in June, from 9.06 percent the previous month. This is well above the RBI target of 5.0-6.0 percent. It also follows the government\'s downward revision of its growth forecast from 9.0 percent to 8.6 percent for the current fiscal year, due to what it called a \"perceptible slowdown\" in the past two financial quarters. A rash of interest rate rises has made loans costlier and slowed consumer demand in a range of sectors from cars to property. India\'s annual industrial output growth also decelerated in May to 5.6 percent, its weakest pace in nine months, down from 8.5 percent expansion in the same month a year earlier. Business leaders have called for a halt to the rises, amid fears that inflation -- and a lack of key economic reforms -- could hit further investment and cut growth. The surge in inflation was initially triggered by spiralling food prices and then exacerbated by rising global commodity prices and higher fuel costs. Economists say inflation has now spilled over into the general economy, pushing up wages and other costs. Subbarao said that crude prices remained volatile and higher fuel costs would keep upward pressure on inflation. \"The monetary policy stance will depend on the evolving inflation trajectory which will be determined by trends in domestic growth and global commodity prices,\" he added. The next RBI meeting is on September 16.

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