India Monetary Policy


India: Central Bank raises interest rates and signals end of tightening cycle

October 25, 2011

At its policy meeting on 25 October, the Reserve Bank of India (RBI) raised interest rates by 25 basis points, lifting the repo rate to 8.50%. The move represents the 13th rate hike since March last year and was broadly anticipated by the market, as inflation remains stubbornly high, hovering above 9%. Monetary authorities deemed it ?necessary to persist with the anti-inflationary stance? despite acknowledging that a moderation in growth is stemming, in part, from tighter monetary policy. However, the Bank expressed serious concern that inflation remains persistently high despite a slower growth environment. In fact, the Bank expects inflation to remain high ?over next couple of months before moderating, as falling global commodity prices so far has been offset by rupee depreciation.? Moreover, monetary authorities are confident that inflation will finally begin to decrease in December and stated that, ?if the inflation trajectory conforms to projections, further rate hikes may not be warranted.?


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