India Again Raises Interest Rate to Combat Rising Inflation

Posted July 26th, 2011 at 10:00 am (UTC-5)
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India’s central bank has again raised its key interest rate in an effort to temper the country’s high inflation.

The Reserve Bank of India on Tuesday increased the repurchase, or repo rate, by half a percentage point to 8 percent. The repo rate is the rate at which it lends to commercial banks.

RBI head Duvvuri Subbarao said with inflation at more than 9 percent, there was no other option but to increase the interest rate.

The surge in inflation has been triggered by high food prices, which have jumped more than 10 percent in the last year and are hurting millions of poor people in the country. Hikes in fuel prices have led to a further spike in inflation.

This is the 11th time the Reserve Bank has raised interest rates since March of last year. The successive increases have already begun dampening an economy which had been growing briskly at 8.5 percent. However, the bank says there is no evidence of a sharp slowdown and expects growth to stay at eight percent.