India raises interest rates to combat inflation

| July 27, 2010 | 0 Comments

The Reserve Bank of India (RBI) has raised its key interest rate from 4% to 4.5% in a bid to combat rising inflation.

It is the fourth such increase this year and economists had only expected a rise to 4.25%.

Inflation rose to 10.55% in June and the latest interest rate hike is a fresh attempt to fight off inflation - which is the highest among the Group of 20 leading nations.

The rise in inflation is due to the higher cost of food. Over the last seven months, annual food inflation has surged, causing major problems for the 450 million people who live below the poverty line.

Inflation is expected to remain stubbornly high in the medium-term but should fall back by the end of the year, according to analysts.

In related news, the Indian economy continues to perform strongly after recent figures showed annualised growth of 8.6% in the three months to March.

The economy for the year ending March 2010 grew by 7.4% – slightly exceeding the RBI‘s forecast of 7.2%.

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