India faces more rate hikes to tame inflation: analysts

MUMBAI, March 21, 2010 (AFP) – India’s central bank looks set to tighten monetary policy further after raising interest rates for the first time in nearly two years as it bids to check spiralling inflation, economists say. In a move that surprised experts, the Reserve Bank of India (RBI) hiked short-term rates from record lows late Friday to battle near double-digit annual inflation amid fast-strengthening industrial output.

Expectations had been for a rate hike at the bank’s scheduled policy review on April 20 but the RBI said in a statement that inflation had “been a source of growing concern.”

The wholesale price index (WPI) in Asia’s third-largest economy was 9.89 percent in February, well above the central bank’s own estimate of 8.5 percent by the end of the current financial year this month.

On Friday, the RBI raised the repo, the rate at which it lends to commercial banks, by 25 basis points to 5.0 percent.

It also raised the reverse repo, the rate it pays to banks for deposits, by 25 basis points to 3.5 percent, saying “inflationary pressures had accentuated and been spilling over to the wider inflationary process.”

“The timing of the hike is surprising,” said Siddharth Sanyal, econ