India lifts interest rates further to combat inflation

| September 16, 2011 | 0 Comments

The Reserve Bank of India (RBI) has today raised key interest rates for the twelfth time since March 2010, in a bid to tame stubbornly high inflation in a thriving economy.

The central bank lifted its main rate to 8.25% from 8% as inflation soars on the back of higher food and fuel prices and the measures were widely expected.

Figures yesterday revealed India’s wholesale price inflation rose to 9.78% last month – the highest level in a year – and significantly above the central bank’s target of between 4% and 5%.

Not only was the rate up from July’s increase of 9.22%, it was also higher than expectations of a 9.70% increase.

This represented the ninth consecutive month that inflation has been above the 9% mark.

Inflation reached a two-year high earlier this year of 10.16%, after food, fuel prices and manufactured goods surged – the highest among the Group of 20 leading nations.

The RBI has previously said one of its main priorities is to bring down inflation.

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

Analysts say the latest rise in petrol prices will add to inflationary pressures.

Inflation could rise even further after Indian Oil Corp., the country’s largest refiner, lifted gasoline prices today for the second time in just four months.

Meanwhile, one economist explains that the RBI has a difficult task to bring inflation down amid signs of slowing growth.

It is currently the world’s second fastest-growing major economy, behind China, after posting growth of 7.7% in the second quarter – albeit, this was slower than the 8.8% expansion in the same period a year earlier.

The Government is forecasting growth of 8.5% for the fiscal year that ends next March.

Prime Minister Manmohan Singh has previously said inflation is a “serious threat” to the country’s growth.

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