India's Hawkish Reserve Bank Hikes Key Lending/Borrowing Rates
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On Friday the Reserve Bank of India became one of the first central banks to raise rates by hiking its key lending and borrowing rates by 0.25 percentage points each. The move is aimed at stymieing any inflationary risks that face the second largest country in the world by population.
The central bank in India surprisingly raised its repurchase rate to 5 percent and its reverse repurchase rate to 3.5 percent, effective immediately.
India is facing serious concerns after February data from the wholesale price index showed a 9.89 percent increase from the same month a year ago, far outpacing the central bank’s expectation for an 8.5 percent increase by the end of March.
The immediate rate hike came as a surprise as economists had expected the Reserve Bank of India to wait until its policy review meeting on April 20.
“Anchoring inflation expectations and containing overall inflation have become imperative,” the central bank said. “As liquidity in the banking system will remain adequate, credit expansion for sustaining the recovery will not be affected.”
The Reserve Bank said that while demand pressure rises, inflation could rise into the double-digit ranges in March, while an easing may not be seen until May or June.
The only other major economies to have raised rates amid a fragile economic recovery have been Australia and Malaysia.
The central bank in India surprisingly raised its repurchase rate to 5 percent and its reverse repurchase rate to 3.5 percent, effective immediately.
India is facing serious concerns after February data from the wholesale price index showed a 9.89 percent increase from the same month a year ago, far outpacing the central bank’s expectation for an 8.5 percent increase by the end of March.
The immediate rate hike came as a surprise as economists had expected the Reserve Bank of India to wait until its policy review meeting on April 20.
“Anchoring inflation expectations and containing overall inflation have become imperative,” the central bank said. “As liquidity in the banking system will remain adequate, credit expansion for sustaining the recovery will not be affected.”
The Reserve Bank said that while demand pressure rises, inflation could rise into the double-digit ranges in March, while an easing may not be seen until May or June.
The only other major economies to have raised rates amid a fragile economic recovery have been Australia and Malaysia.
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