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

US Imposes Sanctions on Alleged Honduran Drug Gang

Treasury department alleges Los Valles group is responsible for smuggling tens of thousands of kilograms of cocaine into US each month More

At 91, Marvel Creator Stan Lee Continues to Expand his Universe

Company's chief emeritus hopes to interest new generation of children in superheroes of all shapes and sizes by publishing content across multiple media platforms More

Photogallery New Drug Protects Against Virus in Ebola Family

Study by researchers at University of Texas Medical Branch, Tekmira Pharmaceuticals is first looking at drug's effectiveness after onset of symptoms 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.
African Media Tries to Educate Public About Ebolai
X
George Putic
August 20, 2014 8:57 PM
While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls For Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid