India hikes interest rates by 25 basis points

MUMBAI, September 16, 2011 (AFP) – India’s central bank on Friday raised interest rates for the 12th time in 18 months to combat near double-digit inflation, despite signs of slowing economic growth. The Reserve Bank of India (RBI) raised its repo rate, at which it lends to commercial banks, by a quarter percentage point to 8.25 percent and increased the reverse repo — the rate it pays to banks for deposits — to 7.25 percent.

RBI governor Duvvuri Subbarao said the move was necessary because inflation remained high and well above the bank’s “comfort zone” of around five percent.

India’s benchmark wholesale price index — the closest watched cost-of-living monitor — hit a 13-month-peak of 9.78 percent in August.

Overall, India’s inflation is the highest of any large global economy.

The monetary tightening lifted the repo rate to a near three-year peak and the reverse repo to its highest in over a decade.

Subbarao said it was “imperative to persist with the current anti-inflationary stance”, adding future rate decisions will be based on “signs of downward movement in the inflation trajectory”.

“A premature change in the policy stance could harden inflationary