Indian central bank hikes key interest rates
Tuesday April 20 , 2010 2:55:11 PM
NEW DELHI: India's central bank Tuesday hiked key interest rates a quarter of a percentage point as it tries to contain inflation without undermining an economic recovery.
It also raised the cash reserve requirement for lenders to 6 percent from 5.75 percent. The new rate will be effective from Saturday, the Reserve Bank of India said in its annual policy
statement for the fiscal year that began April 1.
The increase in the reserve requirement is expected to mop up 125 billion rupees ($2.8 billion) from the financial system, the bank said in a statement.
The bank raised the benchmark repo rate — at which the central bank makes short-term loans to commercial banks — to 5.25 percent from 5 percent and raised the reverse repurchase rate — the rate at which it borrows from commercial banks — to 3.75 percent from 3.5 percent, with immediate effect.
Most economists expected the bank to raise key interest rates by a quarter point because of India's strong growth and persistently high inflation.
"The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted," it said in the statement.
Finance Minister Pranab Mukherjee said he supported the tightening.
India's economy, Asia's third largest, has emerged from the global downturn faster than many expected. Exports have been rising and industrial output growth has been in the double digits
for five months in a row. The central bank has pegged economic growth in the just ended fiscal year at 7.5 percent.
The bank forecast economic growth of 8 percent for the current financial year.
At the same time, inflation remains worrisome. March headline inflation came in at 9.9 percent, less than expected but still high.
And it's no longer just high food prices, which skyrocketed because of the drought, that have policy makers worried. Global commodities prices are increasing, translating into politically-sensitive fuel price rises in India, and the cost of manufactured goods is going up too.
In March, the bank had unexpectedly hiked policy rates by a quarter percentage point, citing inflation concerns, its first increase since the global downturn. In January, it raised cash
reserve requirements by three quarters of a percentage point, more than expected.
Tuesday April 20 , 2010 2:55:11 PM
NEW DELHI: India's central bank Tuesday hiked key interest rates a quarter of a percentage point as it tries to contain inflation without undermining an economic recovery.
It also raised the cash reserve requirement for lenders to 6 percent from 5.75 percent. The new rate will be effective from Saturday, the Reserve Bank of India said in its annual policy
statement for the fiscal year that began April 1.
The increase in the reserve requirement is expected to mop up 125 billion rupees ($2.8 billion) from the financial system, the bank said in a statement.
The bank raised the benchmark repo rate — at which the central bank makes short-term loans to commercial banks — to 5.25 percent from 5 percent and raised the reverse repurchase rate — the rate at which it borrows from commercial banks — to 3.75 percent from 3.5 percent, with immediate effect.
Most economists expected the bank to raise key interest rates by a quarter point because of India's strong growth and persistently high inflation.
"The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted," it said in the statement.
Finance Minister Pranab Mukherjee said he supported the tightening.
India's economy, Asia's third largest, has emerged from the global downturn faster than many expected. Exports have been rising and industrial output growth has been in the double digits
for five months in a row. The central bank has pegged economic growth in the just ended fiscal year at 7.5 percent.
The bank forecast economic growth of 8 percent for the current financial year.
At the same time, inflation remains worrisome. March headline inflation came in at 9.9 percent, less than expected but still high.
And it's no longer just high food prices, which skyrocketed because of the drought, that have policy makers worried. Global commodities prices are increasing, translating into politically-sensitive fuel price rises in India, and the cost of manufactured goods is going up too.
In March, the bank had unexpectedly hiked policy rates by a quarter percentage point, citing inflation concerns, its first increase since the global downturn. In January, it raised cash
reserve requirements by three quarters of a percentage point, more than expected.