New Delhi (AsiaNews/Agencies) – The Reserve Bank of India (RBI) increased its repurchase and reverse repurchase rates by a quarter-point to 6.25 and 5.25 per cent respectively in order to contain inflation, adding that it would probably not raise interest rates in the next three months. The goal is to maintain the cost of borrowing low enough to stimulate growth, whilst reigning in inflation, which stood at 8.6 per cent in September, a three-year record, up from 5.5 per cent in March and above the 6 per cent government target.
“Immediate future rate action is unlikely, barring some shocks,” RBI Governor Duvvuri Subbarao said. Inflation should ease soon as well and come down by December. This should not affect growth projection, which remains on target at 8.5 per cent.
Overseas funds poured a record US$ 25 billion into Indian stocks, strengthening the currency. The Purchasing Managers’ Index rose to 56.2 from 55.6 in September. A reading above 50 indicates expansion.
Still, the latest rise in interest rates is the sixth this year, confirming that inflation is a real concern, and a real possibility in a country where the purchasing power of 75 per cent of the population is less than US$ 2 a day. The more so since food prices are more sensitive to inflation.
India’s action comes in the wake of similar steps taken by China’s central bank, on 19 October, to raise its main rate by a quarter-point, the first time since late 2007, to 5.56 per cent on 12-month loans.
China too is aware of the need to fight inflation, and prevent speculation, especially in sensitive sectors like real estate.