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September 16, 2010    

India lifts interest rates to 5%

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by Kay Murchie

The Reserve Bank of India (RBI) has today elected to lift interest rates from 4.5% to 5% - higher than the 4.75% that economists had expected.

It is the fifth such rise since March as the country battles to tame inflation.

India’s inflation rate, which is the highest among the Group of 20 leading nations, has remained stubbornly high over recent months, due to the higher cost of food.

Annual food inflation has surged, causing major problems for the 450 million people who live below the poverty line.

However, official figures earlier this week showed headline inflation eased to 8.5% in August from a revised 9.8% in July – however, this was partly due to a change in the way the index is calculated.

The new index includes a wider range of consumer goods, such as computers, scooters and refrigerators. August’s inflation rate would have been 9.5% under the previous system.

Finance Minister Pranab Mukherjee has said dealing with inflation is a priority for his ministry.

“Essentially, inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months,” the RBI said today.

In related news, it was recently revealed that India’s economy grew by 8.8% in the second quarter – compared to the same period a year earlier.

The RBI said it expects the country’s economy to grow 8.5% during the 2010/11 financial year.

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