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Monday 28th of June 2010
March 22, 2010    

India interest rate hike sends Asian shares plummeting

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by Kay Murchie
India interest rate hike sends Asian shares plummeting

The Reserve Bank of India (RBI) surprised markets on Friday by raising its key lending and borrowing rates by 25 basis points, in order to combat rising inflation.

The hike sparked fears that other central banks in Asia may increase their efforts to fight inflation, which sent shares lower throughout Asia today.

Hong Kong lost 437.57 points to 20,933.25, while Sydney fell 42 points to 4,830.2. Markets in Japan were closed for a public holiday.

“India’s surprise rate hike may renew concerns about the prospect of an earlier-than-expected rate increase by China,” Kim Seung-han at HI Investment & Securities in Seoul told Dow Jones Newswires.

Analysts had expected the RBI to raise rates at the bank’s scheduled policy review on April 20, which is why the decision came as a surprise, but the RBI said in a statement that inflation had “been a source of growing concern.”

Headline inflation in India rose to a 16-month high of 9.89% last month - far exceeding the central bank’s own estimate of 8.5% by the end of the current financial year this month.

There are concerns that inflation in Asia’s third largest economy could hit double digits.

However, despite inflation fears, India’s finance minister, Pranab Mukherjee, recently said the economy is in good shape and stimulus measures are set to be reviewed.

The economy is recovering faster than expected after expanding at an annual rate of 7.9% in the three months to the end of September, after growing 6.7% in the year to the end of March 2009.

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