India raises policy rate to 7.5% to keep inflation below 5.5%

MUMBAI, Jan 31, 2007 (AFP) – The Reserve Bank of India on Wednesday raised its key short-term borrowing rate by a quarter percentage point to 7.50 percent citing inflation risks as it also hiked its full-year growth forecast. The central bank however kept other rates unchanged including its overnight deposit rate at 6.0 percent after inflation hit 6.12 percent in January.

“The objective will be to bring inflation as close as possible to the 5.0-5.5 percent rate at the earliest,” the central bank said in its policy review.

The central bank raised its full-year growth forecast for the year to March 2007 to 8.5 to 9.0 percent from an earlier forecast of above 8.0 percent.

The 30-share Mumbai stock exchange Sensex index fell 121.04 points to 14,090.92 after hitting a record 14,282.46 last Thursday while the rupee strengthened against the dollar to 44.17 from 44.2.

The local currency however weakened against the euro to 57.25 from 57.10.

Prices in India are now well above the annual rise of 5.0 to 5.5 percent expected by the central bank for the year ended March which had led analysts to expect rate increases in both short-term rates.

The decision to keep the deposit, or reverse repurchase rate, at 6