Indian central bank hikes interest rate

RBI's move goes against demands by Indian industry which had sought a rate cut to boost growth and attract investments.

    RBI on Tuesday announced repo rate would rise to 8.0 percent [Reuters]
    RBI on Tuesday announced repo rate would rise to 8.0 percent [Reuters]

    India's central bank has hiked its key interest rate by 25 basis points in an attempt to bring down inflation, which had been hovering higher than the bank preferred it to in recent weeks.

    According to reports on Tuesday, the Reserve Bank of India (RBI) in a statement said  that the benchmark repo rate, at which it lends to commercial banks, would rise to 8.0 percent.

    The move is expected to push up interest rates on loans for consumers and increase the cost of borrowings for corporates, reports said.

    The RBI move reportedly ran counter to predictions by analysts that the repo rates would be kept on hold as the Wholesale Price Inflation index fell to 6.16 percent in December from a year earlier, down sharply from 7.52 percent in November 2013.

    Giving reasons for the hike,  RBI governor Raghuram Rajan said inflation continued to be under pressure due to rising cost in services, among other economic factors.

    "It is critical to address these risks to the inflation outlook resolutely in order to stabilise and anchor inflation expectations, even while recognising the economy is weak and substantial fiscal tightening is likely in Q4 (January to March),"  reports, quoting him, said.

    Rajan’s move went contrary to the demands by the Indian market which had sought a rate cut to boost growth and attract fresh investments. Tuesday’s decision  is expected to put pressure on the rupee which a day earlier sank to its lowest level in two months, reports said.

    The RBI raised rates in both September and October in an attempt ward off rising inflation, but the federal bank then took markets by surprise by desisting from hiking rates in December despite the fact that inflation accelerated to a 14-month peak.

    SOURCE: Al Jazeera and agencies


    YOU MIGHT ALSO LIKE

    Double standards: 'Why aren't we all with Somalia?'

    Double standards: 'Why aren't we all with Somalia?'

    More than 300 people died in Somalia but some are asking why there was less news coverage and sympathy on social media.

    The life and death of Salman Rushdie, gentleman author

    The life and death of Salman Rushdie, gentleman author

    The man we call 'Salman Rushdie' today is not the brilliant author of the Satanic Verses, but a Picassoesque imposter.

    The Beirut Spy: Shula Cohen

    The Beirut Spy: Shula Cohen

    The story of Shula Cohen, aka The Pearl, who spied for the Israelis in Lebanon for 14 years.