India Raises Interest Rates

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Apr. 21 – India’s central bank raised interest rates for the second time in a month to curb double-digit inflation spurred on by the economic stimulus plan.

Inflation rates rose to 9.9 percent in March compared to 0.5 percent in September, the highest rate in 17 months. The Reserve Bank of India raised the repo rate, or the rate at which the central bank lends to commercial banks, from 5.25 percent to 5 percent.

The bank also increased the cash reserve ratio for banks from 5.75 to 6 percent to avert funds from the market. The tightening measures involved raising the reverse repurchase rates to 3.75 percent. India is trying to achieve the delicate balance of reigning in monetary policies while not harming economic growth.

“Developments on the inflation front are worrisome,” RBI governor Duvvuri Subbarao said in a statement. “With the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalizing our policy instruments,” he added.