India's central bank Thursday raised its key interest rates for the eighth time in 12 months, in an effort to battle rising prices of food and other essential items. The Reserve Bank of India increased its repurchase--or overnight lending--rate by 0.25 percentage point to 6.75%, and the reverse repurchase--or borrowing--rate by 0.25 percentage point to 5.75%.
It kept the cash reserve ratio, or the percentage of deposits that lenders must set aside with the central bank in cash, unchanged at 6%, and banks' statutory liquidity ratio at 24%. The rate increase is expected to "continue to rein in demand-side inflationary pressures while minimizing risks to growth, and manage inflationary expectations and contain the spillover of food and commodity prices into more generalized inflation," the RBI said in its mid-quarter monetary policy review.
It raised its forecast on inflation at the end of the fiscal year through March to 8% from the earlier 7%. Headline inflation was higher than expected in February, accelerating 8.31% from a year earlier to outpace January's provisional 8.23% rise. The central bank kept its growth estimate for the fiscal year at 8.5% with an upward bias.
It kept the cash reserve ratio, or the percentage of deposits that lenders must set aside with the central bank in cash, unchanged at 6%, and banks' statutory liquidity ratio at 24%. The rate increase is expected to "continue to rein in demand-side inflationary pressures while minimizing risks to growth, and manage inflationary expectations and contain the spillover of food and commodity prices into more generalized inflation," the RBI said in its mid-quarter monetary policy review.
It raised its forecast on inflation at the end of the fiscal year through March to 8% from the earlier 7%. Headline inflation was higher than expected in February, accelerating 8.31% from a year earlier to outpace January's provisional 8.23% rise. The central bank kept its growth estimate for the fiscal year at 8.5% with an upward bias.
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