India's central bank hiked interest rates today by a bigger-than-expected 50 basis points, saying short-term economic growth may have to be sacrificed in the fight against inflation. It was the ninth rate increase in 15 months.
'Reining in inflation should gain priority over growth, even if it creates some short-term shocks like lower growth,' Reserve Bank of India governor Duvvuri Subbarao said.
The central bank projected India's economy, the second fastest-growing in the world after China, would expand by 'around' 8% this year after it accelerated by 8.6% last year. Its forecast contrasted with the government's upbeat expectation of 9% growth but was in line with many economists' views.
'Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short run, should take precedence,' Subbarao said.
The latest rate increase followed data showing annual inflation had unexpectedly risen to 8.98% in March from 8.31% the previous month.
Controlling prices has emerged as an overriding political priority for the Congress-led government even as higher economic growth is seen as key to tackling crushing poverty in the nation of 1.2 billion people.
Asian economies such as South Korea, Indonesia, Taiwan and China are all battling inflation, which has become a major headache for Indian Prime Minister Manmohan Singh's coalition government - already reeling from a string of corruption scandals.
Poorer households, the backbone of the ruling Congress party's support, have been especially hard-hit by food and fuel price rises.
The country's repo rate - at which it lends to commercial banks - now stands at 7.25% after the 50-point rise while its reverse repo - the rate it pays banks for deposits - is 6.25%.
