India Monetary Policy


India: Central Bank raises interest rates by 50 basis points

May 3, 2011

At its latest policy meeting on 3 May, the Reserve Bank of India (RBI) increased interest rates by 50 basis points, raising the repo rate to 7.25%. The decision surprised the market, as most analysts expected a more moderate 25 basis point rate hike. The move represents the continuation of the tightening cycle that began in March last year, when the RBI raised the repo rate from its record-low of 4.75%. In its statement, the RBI warned of ?significant risk? for both growth and inflation stemming from high international commodity prices, particularly for oil. Moreover, the Bank acknowledged that the latter could complicate the achievement of the fiscal target as well as the financing of the current account balance going forward. Finally, the RBI confirmed that inflation is ?expected to remain at an elevated level in the first half of the year, before gradually moderating to 6 per cent by March 2012. This trajectory is conditional on appropriate policy actions over the year.?


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