India raises interest rates to combat inflation

| July 4, 2010 | 0 Comments

The Reserve Bank of India (RBI) has raised its key lending and borrowing rates from 5.25% to 5.5%, in a bid to combat rising inflation.

Inflation rose to 10.16% in May – far exceeding the central bank’s own estimate of 8.5%.

The wholesale price index rate, which represents the highest since 2008, is the central bank’s most closely watched gauge of inflation and exceeded analysts expectations of a 9.60% rise.

Following its decision, the central bank said: “There has been some moderation in food price inflation, but the price index of food articles continues to increase.

“More importantly, the prices of non-food manufactured goods and fuel items have accelerated in recent months,” said the RBI.

The decision to lift interest rates was widely expected and followed two rises in April.

Brian Jackson, senior emerging markets analyst at Royal Bank of Canada, expects more rate increases in the short-term.

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