Text size:

  • Small
  • Normal
  • Large
Food prices in India last month rose 18.4 per cent from the same period last year, with the cost of onions surging 322.94 per cent. Vivek Prakash / Reuters
Food prices in India last month rose 18.4 per cent from the same period last year, with the cost of onions surging 322.94 per cent. Vivek Prakash / Reuters

India raises key interest rate to battle high inflation levels

The Reserve Bank of India alo continued rolling back emergency liquidity measures intended to arrest the rupee's slide.

India’s central bank raised its key interest rate yesterday in an effort to keep high inflation levels in check.

The Reserve Bank of India (RBI) at the same time continued to roll back emergency liquidity measures that were taken over the summer to try to stem the slide of the rupee.

Raghuram Rajan, who took over as the RBI’s governor last month, raised the repo rate by 25 basis points for the second consecutive month. It now stands at 7.75 per cent. “The policy stance and measures are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth,” he said.

“It is important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth.”

The RBI cut the marginal standing facility – a short-term borrowing rate for banks – from 9 per cent to 8.75 per cent.

The rate decisions might not have an immediate impact on saving and lending rates, analysts said.

“The RBI actions today would reduce rates in the short-term debt market and part of this can get reflected in the dated securities market also,” said Sujan Hajra, the chief economist at Anand Rathi Securities.

“Yet, this is unlikely to lead to any immediate change in bank lending or deposit rates. At the current juncture, with a stable rupee and high deposit rates offered to the NRIs [non-resident Indians], deposits of Indian banks would continue to be an attractive fund deployment opportunity for them.”

High food and fuel prices drove up the wholesale price index, India’s main gauge of inflation, 6.46 per cent last month, compared to a rise of 6.1 per cent in August.

The weak rupee, which plunged to a series of record lows this year, has exacerbated the situation by making fuel imports more costly.

Food prices last month rose 18.4 per cent from the same period last year, with the cost of onions surging 322.94 per cent.

“The RBI talked and walked like a hawk, further raising the inflation guards while continuing the roll-back of the currency stabilisation measures,” said Leif Eskesen, HSBC’s chief economist for India and Asean. “Zeroing in on inflation, despite the weak growth backdrop, is appropriate in light of the lingering inflation pressures.”

Markets cheered the decision. The benchmark S&P Bombay Stock Exchange Sensex rose 1.74 per cent to 20,929.01 yesterday.

The rupee strengthened marginally, with the US dollar down 0.11 per cent at 61.45 rupees in afternoon trading. India’s GDP slowed to a decade low of growth of 5 per cent this year.

“The upshot is that even after the full removal of July’s ‘exceptional measures’, monetary policy will remain on a tighter setting than it was earlier this year, which will be of little help to India’s struggling economy,” said Daniel Martin, the Asia economist at Capital Economics.

Analysts at Anand Rathi wrote in a report that they expect a further 25 basis point increase in the repo rate in the current financial year, which runs until the end of March.

business@thenational.ae

Back to the top

More articles


Editor's Picks

On our sixth birthday, today’s news told visually

Today in print, we are doing something different: we use only photos, graphics, illustrations and headlines to capture the news in a one-off collector’s edition.

 Rolling out the structure for the set. Mona Al Marzooqi / The National

Star Wars: Episode VII evidence in Abu Dhabi desert

After more than a week of speculation, The National has what are believed to be the first photos of a Star Wars shoot in the Abu Dhabi desert.

 INVERNESS, SCOTLAND - APRIL 16:  A general view of Urquhart Castle, Drumnadrochit on April 16, 2014 in Scotland. A referendum on whether Scotland should be an independent country will take place on September 18, 2014.  (Photo by Jeff J Mitchell/Getty Images)

Map of seperatist movements around the world

The conflict in Ukraine is a classic example of competing aspirations and identities – here’s a look at seperatist movements around the world.

 Hassan Abdullah, who goes by the name Abu Mahmoud, an Emirati fisherman, poses for a portrait at the Al Rughayalat Port. Abu Mahmoud was born and raised in Fujairah city and has been working as a fisherman since 1968. “I’m a shark man”, he says, “I was born in the sea.” Silvia Razgova / The National

In pictures: Fishing communities in the Northern Emirates

Fishermen in Fujairah and Umm Al Qaiwain worry that new regulations to protect fish stocks are harming their trade. We look at both communities through the lens of our photographers.

 The cast of Fast & Furious 7, including Michelle Rodriguez and Vin Diesel, centre, on set at Emirates Palace in Abu Dhabi. Jeffrey E Biteng / The National

Fast & Furious 7 filming in full swing at Emirates Palace

Filming for Fast & Furious 7 has started and we have the first photos of the cast and crew on set at Emirates Palace hotel this morning. Visitors staying at Emirates Palace say they have been kept away from certain areas in the grounds.

 Omar Al Miskini was honoured as Outstanding Male Driver with Special Needs at last month’s Gulf Traffic Week.

In pictures: Special needs driver an exemplary example in the UAE

Photos of Omar Al Miskini, 40, who was named exemplary male driver with special needs by Abu Dhabi Police during the Gulf Traffic Week

Events

To add your event to The National listings, click here

Get the most from The National