India's central bank today raised interest rates by a quarter of a percentage point, its 12th hike since March last year, to combat near double-digit inflation.
The Reserve Bank of India raised its repo rate, at which it lends to commercial banks, by 0.25 percentage points to 8.25% and increased the reverse repo - the rate it pays to banks for deposits - to 7.25%.
The repo rate is now at a near three-year high and the reverse repo is at its highest level in more than a decade. Overall, India has the highest inflation rate of any large Asian economy.
After a meeting of policy makers in the financial capital Mumbai, RBI governor Duvvuri Subbarao said the move was necessary to contain soaring prices. "Inflation remains high, generalised and much above the comfort zone of the Reserve Bank," he said.
"Global crude oil prices have remained elevated despite weakening of global recovery. Moreover, there is still an element of suppressed inflation,'' he added.
As a result, he said it was "imperative to persist with the current anti-inflationary stance", with future decisions based on "signs of downward movement in the inflation trajectory".
Analysts, who widely expected this latest hike, said it could mark the high point of India's rate cycle and be the last from the RBI this calendar year. Business groups are complaining that the rate hikes are choking economic growth.
Last month, India posted its slowest gross domestic product (GDP) growth in six quarters, up 7.7% year-on-year, as expansion was hit by the longest stretch of monetary tightening in a decade.
The further rate hike - after an unexpected 50 basis points rise in July - means the cost of borrowing will increase and car and property loans get costlier, impacting demand for goods and some services.
