India central bank lifts rates

Tue Oct 25, 2011 4:11am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Tony Munroe and Swati Bhat

MUMBAI (Reuters) - India's central bank raised interest rates on Tuesday for the 13th time since early 2010 to battle stubbornly high inflation but signaled it may end the tightening cycle that has put it at odds with peers more concerned about weak global growth.

The Reserve Bank of India (RBI) raised its policy lending rate, the repo rate, by 25 basis points to 8.5 percent. The rise was in line with expectations and marked the central bank's latest effort to tame inflation that has topped 9 percent for nearly a year.

The likelihood of a rate move at the next scheduled review in December is "relatively low," the central bank said in a statement. "Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted."

Interest rate markets fell and stocks were briefly lifted by hopes that a flurry of rate rises widely seen as weighing down the emerging giant's growth could be coming to an end.

The central bank acknowledged in its quarterly report on economic and monetary developments issued on Monday that growth risks had increased, a factor that has already prompted Brazil, Indonesia and Singapore to relax monetary policy.

In a statement on Tuesday, the RBI revised down its economic growth forecast for the current fiscal year ending in March to 7.6 percent from 8 percent with a downward bias.

The RBI stuck with its forecast that headline wholesale inflation will ease to 7 percent at the end of the fiscal year. But it has repeatedly missed its inflation forecasts as supply-side constraints, global commodity prices and loose fiscal policy limited the effectiveness of monetary tools.

Investors took comfort in the prospect that India's tightening cycle may be coming to an end, but warned that it wouldn't necessarily translate into fresh impetus for an economy running at its weakest growth rate since 2009.   Continued...

<p>India's Central Bank Governor Duvvuri Subbarao speaks at the BRICs finance ministers' news conference during the annual International Monetary Fund (IMF)-World Bank meetings in Washington September 22, 2011. REUTERS/Yuri Gripas</p>