India hikes key interest rates by 50 basis points

MUMBAI, May 3, 2011 (AFP) – India’s central bank on Tuesday raised lending rates by a bigger-than-expected 50 basis points, its ninth hike in 15 months to curb inflation, and warned that the move could slow economic growth. The Reserve Bank of India raised its repo — the rate at which it lends to commercial banks — to 7.25 percent and increased its reverse repo — the rate it pays to banks for deposits — to 6.25 percent.

“Reining in inflation should gain priority over growth, even if it creates some short-term shocks like lower growth,” Reserve Bank governor Duvvuri Subbarao said after bank policymakers met in India’s financial hub Mumbai.

“Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short-run, should take precedence,” he said.

India’s benchmark 30-share Sensex index tumbled 1.08 percent or 205.23 points to 18,729.79 points after the rate announcement.

The central bank’s step comes as Asian economies from South Korea, Indonesia, Taiwan to China are all battling inflationary pressures.

The bank’s meeting followed data showing annual inflation had unexpectedly surged to 8.98 percent in Mar

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