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

    California Republicans Mull Choices in Presidential Race

    Ted Cruz tells state's Republican Convention delegates campaign will be 'battle on the ground, district by district by district,' ahead of June 7 primary

    Video Kurdish Football Team Helps War-Torn City Cope

    With conflict still raging across much of Turkey’s predominantly Kurdish southeast, many Kurds are trying to escape turmoil by focusing on success of football team Amedspor

    South African Company Designs Unique Solar Cooker

    Two-man team of solar power technologists introduces Sol4, hot plate that heats up so fast it’s like cooking with gas or electricity

    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.
    Turkish Kurd Islamist Rally Stokes Tensionsi
    X
    April 29, 2016 12:28 AM
    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Turkish Kurd Islamist Rally Stokes Tensions

    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Pakistani School Helps Slum Kids

    Master Mohammad Ayub runs a makeshift school in a public park in Islamabad. Thousands of poor children have benefited from his services over the years, but, as VOA's Ayesha Tanzeem reports, roughly 25 million school-age youths don't get an education in Pakistan.
    Video

    Video Florida’s Weeki Wachee ‘Mermaids’ Make a Splash

    Since 1947, ‘mermaids’ have fascinated tourists at central Florida’s Weeki Wachee Springs State Park with their fluid movements and synchronized ballet. Performing underwater has its challenges, including cold temperatures and a steady current, as VOA’s Lin Yang and Joseph Mok report.
    Video

    Video Somali, African Union Forces Face Resurgent Al-Shabab

    The Islamic State terror group claimed its first attack in Somalia earlier this week, though the claim has not been verified by forces on the ground. Meanwhile, al-Shabab militants have stepped up their attacks as Somalia prepares for elections later this year. Henry Ridgwell reports there are growing frustrations among Somalia’s Western backers over the country’s slow progress in forming its own armed forces to establish security after 25 years of chaos.
    Video

    Video Bangladesh Targeted Killings Spark Wave of Fear

    People in Bangladesh’s capital are expressing deep concern over the brutal attacks that have killed secular blogger, and most recently a gay rights activist and an employee of the U.S. embassy. Xulhaz Mannan, an embassy protocol officer and the editor of the country’s only gay and transgender magazine Roopban; and his friend Mehboob Rabbi Tanoy, a gay rights activist, were hacked to death by five attackers in Mannan’s Dhaka home earlier this month.
    Video

    Video Documentary Tells Tale of Chernobyl Returnees

    Ukraine this week is marking the 30th anniversary of the world's worst nuclear accident, at the Chernobyl nuclear power plant. Soviet officials at first said little about the accident, but later evacuated a 2,600-square-kilometer "exclusion zone." Some people, though, came back. American directors Holly Morris and Anne Bogart created a documentary about this faithful and brave community. VOA's Tetiana Kharchenko reports from New York on "The Babushkas of Chernobyl." Carol Pearson narrates.
    Video

    Video Nigerians Feel Bite of Buhari Economic Policy

    Despite the global drop in the price of oil, Nigerian President Muhammadu Buhari has refused to allow the country's currency to devalue, leading to a shortage of foreign exchange. Chris Stein reports from Lagos businessmen and consumers are feeling the impact as the country deals with a severe fuel shortage.
    Video

    Video  Return to the Wild

    There’s a growing trend in the United States to let old or underused golf courses revert back to nature. But as Erika Celeste reports from one parcel in Grafton, Ohio, converting 39 hectares of land back to green space is a lot more complicated than just not mowing the fairway.
    Video

    Video West Urges Unity in Libya as Migrant Numbers Soar

    The Italian government says a NATO-led mission aimed at stemming the flow of migrants from Libya to Europe could be up and running by July. There are concerns that the number of migrants could soar as the route through Greece and the Balkans remains blocked. Western powers say the political chaos in Libya is being exploited by people smugglers — and they are pressuring rival groups to come together under the new unity government. VOA's Henry Ridgwell reports.
    Video

    Video Russia’s TV Rain Swims Against Tide in Sea of Kremlin Propaganda

    Russia’s media freedoms have been gradually eroded under President Vladimir Putin as his government has increased state ownership, influence, and restrictions on critical reporting. Television, where most Russians get their news, has been the main target and is now almost completely state controlled. But in the Russian capital, TV Rain stands out as an island in a sea of Kremlin propaganda.

    Special Report

    Adrift The Invisible African Diaspora