News / Asia

India Again Raises Interest Rates to Try to Control Inflation

The Reserve Bank of India logo is pictured outside its head office in Mumbai, July 26, 2011.
The Reserve Bank of India logo is pictured outside its head office in Mumbai, July 26, 2011.

India’s central bank has announced another interest rate hike in a bid to rein in inflation which continues to run high despite a series of rate hikes in the last year and a half.

The measure is widely expected to cool off the economy, which is already showing signs of slowing down.

Dramatic hike

Although the Reserve Bank’s move in hiking interest rates was widely anticipated, the half a percentage point raise caught economists by surprise.  They had been expecting a more moderate increase.

The Reserve Bank will now lend to banks at eight percent. Reserve Bank Governor Duvvuri Subbarao says with inflation running at more than nine percent, he has no other options.    

“Inflation is expected to remain elevated for a few more months before moderating towards the later part of this year," says Subbarao. "The challenge for the government and for the Reserve Bank is to ensure that demand is constrained in the short term to bring inflation down.”

The surge in inflation was triggered by high food prices, which have jumped more than 10 percent in the last year and are hurting millions of poor people in the country. Hikes in fuel prices have led to a further spike in inflation.    

This is the 11th time that the Reserve Bank has raised interest rates since March of last year. The successive hikes have already begun dampening an economy which had been growing briskly at eight-and-a-half percent. However, the bank says there is no evidence of a sharp slowdown and expects growth to stay at eight percent.

Flagging optimism

That optimism is not shared by most economists, who say that Asia’s second fastest growing economy is losing momentum as credit becomes more expensive.    

Car sales have slowed down. Consumers are taking fewer loans to buy homes. Investment has become sluggish, and industrial output has been down.

The government faces a dilemma. It has frequently said that India needs ten percent growth in the coming years to create new jobs and lift millions out of poverty, and had hoped to achieve that soon. But controlling inflation is also a priority as high prices are hurting the poor the most.

Economist D.H. Pai Panandiker, who heads the RPG Goenka Foundation, says the government will have to take steps to ensure that investment by industry does not dry up if it wants to ensure that growth does not take a significant hit.   

“If you look at the impact of the earlier hike[s], the last six months or so, private investment has already come down by 43 percent," Panandiker says. "Increase in interest rates will bring it down further. Government has to think of other ways to bring up investment.”

Most observers had expected Tuesday’s interest rate hike to be the last announced by the Reserve Bank.  But officials have warned that if inflation does not taper off, interest rates could be raised even further.

India has the highest inflation in a major Asian economy.

You May Like

Video Obama Announces Plan to Send 3,000 Troops to Liberia in Ebola Fight

At US Centers for Disease Control and Prevention, Obama details troop deployment and other pieces of US plan More

Video China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Enviropreneur Seeks to Save the Environment, Empower the Communityi
X
September 16, 2014 2:06 PM
Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid