MUMBAI: India’s central bank has hiked interest rates for the first time in more than three years as the Middle East conflict stokes inflation in Asia’s third-largest economy and batters a weakened rupee.
The Reserve Bank of India (RBI) said the benchmark repurchase rate, the level at which it lends to commercial banks, would be raised by 25 basis points to 5.5% after a unanimous vote by a six-member panel.
In doing so, the RBI shifted gears to join several central banks around the world who have raised rates to curb price rises or boost their currencies.
Since the outbreak of the Iran war in February, the RBI has stood pat as it waited to assess the impact of oil prices on the world’s fastest-growing major economy.
But resilient gross domestic product growth last quarter has allowed it to focus on higher costs in a country that imports most of its energy and has been hit by a weak monsoon that could result in a spike in food prices.
Retail inflation rose to 4.82% in August –the third straight month that headline inflation breached the RBI’s medium-term target of 4% – with data signalling that inflationary pressures had spread beyond food and transport.
Adding to the central bank’s calculations is pressure on the rupee, which has been at near record lows over the past week.
To stem the fall, the RBI has rolled out an array of moves to woo dollar inflows. — AFP
