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India's Central Bank Hikes Interest Rates to Control Inflation


India's Central bank has hiked interest rates in a bid to control high inflation, which is hurting millions of people. Inflation has been rising since a poor monsoon season last year, but hopes are high that normal rains could ease pressure on prices.

In a statement, the Central Bank says the latest hike in key interest rates by a quarter of a percentage point will help control inflation, which is running at nearly 10 percent.

India, like other countries, had slashed interest rates during the economic recession to boost demand. But its economy has revived, prompting policy makers to reverse some of those measures to battle inflation.

India has witnessed a spurt in living costs in the past year, particularly in food items whose prices have surged by more than 18 percent. Costs of fuel and other goods such as cars are also up.

But it is the high prices of food that remain of special concern in a country where nearly half the population lives on less than two dollars a day.

The government, which has been under fire for failing to control prices, hopes the Central Bank's measure in raising interest rates will help.

"A clear signal has been given that we will have to fight inflation, so whatever necessary from the monetary side is being done," said Finance Minister Pranab Mukherjee.

Much of the price rise of food is being blamed on disappointing monsoon rains last year, which were the lowest in nearly four decades, hurting food production.

The Finance Minister has expressed hopes that inflation will come down by nearly half in the coming months.

The government is pinning its hopes on recent weather forecasts that the country will experience a normal monsoon in the months ahead. Monsoon rains, which come between June and September, are crucial for food output in a country where much of the farmland is not irrigated. Policy makers say a good monsoon will ease pressure on prices.

Economists say the Central Bank is likely to raise interest rates even further in the coming months if inflation continues to run high.

But they say the government and the Central Bank will have to ensure the rising interest rates do not hurt the economy, which is growing by more than seven percent, and which the Finance Minister says has "bounced back."

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