Dubai: India’s central bank on Tuesday raised benchmark interest rates by a quarter percentage point in its sixth hike since the start of the year to curb stubborn inflation in the country's booming economy.
The Reserve Bank of India (RBI) hiked its main repo rate - the rate at which it lends to commercial banks - to 6.25 percent. The reverse repo rate - the rate it pays to banks for deposits - was also increased to 5.25 percent.
The monetary tightening came as Australia's central bank also lifted interest rates by a quarter point Tuesday to 4.75 percent as it warned the economy faced a "large expansionary shock" triggered by a mining boom.
"The interest rate increases occur amid positive signals about the prospect of Asian economies against persistent sluggishness in advanced economies in Europe and the US," said Matt Robinson, senior economist at Moody's Analytics.
Australia's central bank jacked up its key interest rate in a surprise move Tuesday that aims to ward off higher inflation as the nation's economy booms amid strong Asian demand for iron ore and other minerals.
The Australian dollar shot up more than one US cent to nearly $1 immediately after the decision to raise the rate by a quarter percentage point to 4.75 percent - the first hike since May. The currency's move higher reflects that investors expect higher interest rates to attract more foreign money into the country.
The decision was a surprise to most analysts who had predicted there would be no change after figures last week showed lower-than-expected inflation of 2.4 percent in the September quarter.
But the Reserve Bank said in its statement that it expected inflation to go higher because of the country's mining boom - which is being driven by rising Asian powers China and India as well as advanced nations like South Korea and Japan.
After its latest increase, India Reserve Bank said it expected to be able to keep rates on hold for some time.
"Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low," RBI governor D. Subbarao said.
The deputy chairman of India;s economic Planning Commission, Montek Singh Ahluwalia, welcomed the increase.
"The adjustment is a good balance between responding to inflationary concern, which is very important, and at the same time not doing anything in any serious way to disrupt growth momentum," he told reporters in New Delhi.
India has been aggressive in raising interest rates in Asia's third-largest economy to check inflation as the country's economy races ahead.
Overall inflation was in double figures earlier this year but has dropped to 8.62 percent, higher than the RBI's comfort zone of five to six percent.
Food price inflation has also eased but is still a worry at 13.75 percent, despite good monsoon rains.
(With inputs from agencies )
