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Thursday February 02, 2023

India hikes interest rate but at slower pace

India’s central bank has raised its main interest rate for the fifth time this year

By AFP
December 07, 2022
India’s central banks logo can be seen embedded on a wall. — AFP/File
India’s central bank's logo can be seen embedded on a wall. — AFP/File

MUMBAI: India’s central bank on Wednesday raised its main interest rate for the fifth time this year, but by a smaller margin as inflation eases and other countries look to slow the pace of hikes.

The move by the Reserve Bank of India (RBI) comes after US Federal Reserve chairman Jerome Powell signalled last week that officials would begin to take their foot off the pedal.

"GDP growth in India remains resilient and inflation is expected to moderate," RBI governor Shaktikanta Das said in a webcast.

However, he added: "But the battle against inflation is not over. Pressure points from high and sticky core inflation, and exposure of food inflation to international factors and weather-related events, do remain."

Das said the benchmark repurchase rate would rise 35 basis points to 6.25%, following three straight rises of half a percentage point since June and one of 40 points in May.

The move was in line with market expectations.

Consumer inflation has this year hovered above the RBI’s upper band of six percent, hitting a high of 7.79% in April, though it eased to 6.77% in October.

The bank retained its inflation forecast of 6.7% for the fiscal year to March but trimmed its economic growth projection to 6.8% from 7.0%.

India imports more than 80% of its crude oil needs and rising petrol costs — caused by Russia’s invasion of Ukraine — have had a ripple effect on prices for the country’s 1.4 billion people.

Elevated commodity prices and a falling rupee have left India struggling with a deteriorating trade balance, with net imports in the September quarter nearly doubling year-on-year.

Exports plunged to a 20-month low of $29.78 billion in October, as high inflation and recession fears hit demand in key overseas markets.

The Indian rupee hit record low against the dollar in October as the US unit was boosted by sharp rate hikes by the Fed. However, it has recovered slightly since then, thanks to interventions by the RBI.

Data last week showed Indian economic growth slowed to 6.3% on-year in July-September. That was well down from 13.5% recorded in the previous three months, which was boosted by the recovery from the depths of the pandemic in 2021.