India raises key interest rates to fight inflation
By Erika Kinetz |
July 28, 2010, Wednesday
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Print Edition
Print Edition
INDIA'S central bank raised key interest rates more than expected yesterday to combat rising prices and raised its growth and inflation forecasts for the year.
The Reserve Bank of India raised the repo rate - at which the central bank makes short-term loans to commercial banks - by a quarter percentage point to 5.75 percent. It raised the reverse repo rate - the rate at which it borrows from commercial banks - by an unexpected half percentage point to 4.5 percent.
Economists had expected quarter point rises in both rates. The bank left the cash reserve ratio unchanged at 6.0 percent, as expected.
The bank says economic growth for the year through March 2011 will be 8.5 percent, higher than its April forecast of 8.0 percent, thanks to better-than-expected industrial production, despite resurgent concerns about the health of the global economy.
It raised its inflation forecast for March 2011 from 5.5 percent to 6.0 percent.
"The dominant concern that has shaped the monetary policy stance in this review is high inflation," Governor D. Subbarao said in his policy statement. "With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation."
Headline inflation, which hit 10.6 percent in June, has been in the double digits since February. High prices have become a political issue, with opposition parties staging protests, and policy makers keen to check rising prices.
The central bank said nonfood items contributed more than 70 percent to headline inflation in June.
The Reserve Bank of India raised the repo rate - at which the central bank makes short-term loans to commercial banks - by a quarter percentage point to 5.75 percent. It raised the reverse repo rate - the rate at which it borrows from commercial banks - by an unexpected half percentage point to 4.5 percent.
Economists had expected quarter point rises in both rates. The bank left the cash reserve ratio unchanged at 6.0 percent, as expected.
The bank says economic growth for the year through March 2011 will be 8.5 percent, higher than its April forecast of 8.0 percent, thanks to better-than-expected industrial production, despite resurgent concerns about the health of the global economy.
It raised its inflation forecast for March 2011 from 5.5 percent to 6.0 percent.
"The dominant concern that has shaped the monetary policy stance in this review is high inflation," Governor D. Subbarao said in his policy statement. "With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation."
Headline inflation, which hit 10.6 percent in June, has been in the double digits since February. High prices have become a political issue, with opposition parties staging protests, and policy makers keen to check rising prices.
The central bank said nonfood items contributed more than 70 percent to headline inflation in June.
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