The Reserve Bank of India raises interest rates

MUMBAI: Raghuram Rajan, the new governor of the Reserve Bank of India surprised the markets by raising the key lending rate in a bid to curb inflation in his first monetary policy review.

The Reserve Bank of India raised its repo rate (the rate at which the central bank lends to commercial banks) by 25 basis points from 7.25% to 7.50%.

“Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately,“ Raghuram Rajan said, who took charge of the office only about two weeks ago.

Raising the repo rate surprised analysts who had predicted no change. It shows Mr Rajan, who is a former IMF chief economist, is serious about the rising inflation. India’s Wholesale Price Index (WPI) inflation rose to a 6 month high of 6.1 percent in August, with Consumer Price Inflation (CPI) at 9.52 percent.

The Indian economy has been slowing down over the recent months. The latest move by the Reserve Bank of India weakened the rupee by 0.4 percent to trade at 62.04 against the dollar. And the benchmark Sensex Index fell by as much as 2.7 percent.