India hikes rates by surprise 50 basis points

MUMBAI, July 26, 2011 (AFP) – India’s central bank hiked interest rates by a higher-than-expected 50 basis points on Tuesday, its 11th increase since March 2010, as it struggles to combat near double-digit inflation. The Reserve Bank of India (RBI) raised its repo rate at which it lends to commercial banks to 8.0 percent and increased the reverse repo — the rate it pays to banks for deposits — to 7.0 percent.

The repo rate is now at a near three-year high and the reverse repo is at its highest level in more than a decade, analysts say.

India has the highest inflation of any major economy in Asia, running at almost 10 percent.

Reducing prices has become a political priority for the Congress-led coalition in New Delhi, even as higher growth is seen as key to reducing crushing poverty in the nation of 1.2 billion. After a quarterly meeting of policy makers in the financial capital Mumbai, RBI governor Duvvuri Subbarao blamed the rate hikes on a range of factors, including higher fuel prices and rising non-food costs.

“Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-infl