7.29 PM Friday, 29 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:56 06:10 12:26 15:53 18:37 19:52
29 March 2024

India hikes rates for a sixth time

Interest rates further hiked. (AFP)

Published
By AFP

India's central bank on Tuesday raised benchmark interest rates by a quarter percentage point in its sixth hike since the start of the year to curb stubborn inflation in the country's booming economy.

The Reserve Bank of India (RBI) hiked its main repo rate -- the rate at which it lends to commercial banks -- to 6.25 per cent. The reverse repo rate -- the rate it pays to banks for deposits -- was also increased to 5.25 per cent.

The monetary tightening came as Australia's central bank also lifted interest rates by a quarter point Tuesday to 4.75 per cent as it warned the economy faced a "large expansionary shock" triggered by a mining boom.

"The interest rate increases occur amid positive signals about the prospect of Asian economies against persistent sluggishness in advanced economies in Europe and the US," said Matt Robinson, senior economist at Moody's Analytics.

After its latest increase, India's Reserve Bank said it expected to be able to keep rates on hold for some time.
"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," RBI governor D. Subbarao said.

The deputy chairman of India's economic Planning Commission, Montek Singh Ahluwalia, welcomed the increase.
"The adjustment is a good balance between responding to inflationary concern, which is very important, and at the same time not doing anything in any serious way to disrupt growth momentum," he told reporters in New Delhi.

Devendra Kumar Pant, director at Fitch Ratings, said the increase was "more or less expected". But he said it was not yet a given that rates would stay on hold at the next meeting of monetary policymakers in January.

"It's always a forward-looking call. But if there is any adverse scenario then they won't hesitate to intervene," he told AFP.

India has been aggressive in raising interest rates in Asia's third-largest economy to check inflation as the country's economy races ahead.

Overall inflation was in double figures earlier this year but has dropped to 8.62 per cent, higher than the RBI's comfort zone of five to six percent.

Food price inflation has also eased but is still a worry at 13.75 per cent, despite good monsoon rains.
The government predicts that inflation will fall to five to six per cent by the end of the financial year in March 2011.

India's government is keen to dampen inflation but not hurt economic growth, which is forecast to hit 8.5 per cent this financial year and 9.0 per cent in the following year.

Data this week showed manufacturing grew faster in October than in the previous month, although the cost of raw materials has risen markedly.

Policymakers say inflation has spread from food to other parts of the economy, such as commodities, fuel and metals.

India's leading 30-share Sensex edged down 0.08 percent to 20,338.89 in early afternoon trade after the rate announcement.