India's central bank today hiked interest rates by 0.25 percentage points, its seventh increase in less than 12 months in a bid to tame rising inflation as the country's economy booms.
The Reserve Bank of India has been one of the most aggressive central banks in raising the cost of borrowing as the nation has powered out of the global downturn with economic growth of nearly 9%.
The expected rise pushed the repo - the rate on loans the central bank makes to commercial banks - to 6.5%, and the reverse repo - the rate it pays to banks for deposits - to 5.5%.
The Reserve Bank of India's governor Duvvuri Subbarao said inflation remained at 'elevated levels' in Asia's third-largest economy, prompting a need to continue with steps to curb prices and lower 'inflationary expectations'.
'The prospects of food and fuel price rises spilling over to the general inflation process is rapidly becoming a reality,' Subbarao said, with wages already on the rise to offset inflation.
Annual inflation surged in December to 8.43%, up nearly a percentage point from the previous month.
The bank maintained its growth forecast for the current financial year to March at 8.5%. But it raised its year-end inflation projection to 7% from 5.5% - reflecting rises in food, petrol and metal prices.
In India, pressure has been mounting on the central bank and the government to curb inflation as Premier Manmohan Singh and his Congress party gear up for nine state elections over the next year-and-a-half.
Rising food prices have added to public anger over a series of massive corruption scandals, creating a toxic mix for Singh's administration just 18 months into its second term.
The price of onions, for example - a staple on family shopping lists and known as a politically potent issue - has tripled to 80 rupees ($1.75) a kilogramme in a few months.
