India hikes interest rate but at slower pace
MUMBAI
India’s central bank yesterday 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 U.S. Federal Reserve chairman Jerome Powell signaled 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 percent, 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 6 percent, hitting a high of 7.79 percent in April, though it eased to 6.77 percent in October.
The bank retained its inflation forecast of 6.7 percent for the fiscal year to March but trimmed its economic growth projection to 6.8 percent from 7.0 percent.
India imports more than 80 percent 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.
Data last week showed Indian economic growth slowed to 6.3 percent on-year in July-September. That was well down from 13.5 percent recorded in the previous three months, which was boosted by the recovery from the depths of the pandemic in 2021.
