MUMBAI, Sept 16, (AFP): India’s central bank raised interest rates for the 12th time in 18 months on Friday to combat near double-digit inflation, despite signs of slowing economic growth.
The Reserve Bank of India (RBI) raised its repo rate, at which it lends to commercial banks, by a quarter percentage point to 8.25 percent and increased the reverse repo — the rate it pays to banks for deposits — to 7.25 percent.
RBI Governor Duvvuri Subbarao said the move was necessary because inflation remained high and well above the bank’s “comfort zone” of around five percent.
India’s benchmark wholesale price index — the closest watched cost-of-living monitor — hit a 13-month-peak of 9.78 percent in August.
Overall, India’s inflation is the highest of any large global economy.
The monetary tightening lifted the repo rate to a near three-year peak and the reverse repo to its highest in over a decade.
Subbarao said it was “imperative to persist with the current anti-inflationary stance”, adding that future rate decisions will be based on “signs of downward movement in the inflation trajectory”.
The RBI is on its longest run of monetary tightening in a decade and has vowed to fight inflation even at the cost of economic growth.
The hike comes as central banks in countries such as China and South Korea have held rates as they wait to see whether decelerating growth will curb inflation, while Russia and Brazil have cut rates due to concerns over their economies.
India’s Finance Minister Pranab Mukherjee said the rate rise was in line with expectations, as inflation was “very high”.

“Hopefully, the measures taken will bring us to a more comfortable inflationary situation, earlier than later,” he said.
Analysts also expected the move but were divided on whether India’s rate hiking cycle had peaked.
Deepali Bhargava, chief India economist at Espirito Santo Securities, told AFP: “The RBI has left doors open for more rate hikes but the probability is now low.”
But Ritika Mankar, economist at Mumbai’s Ambit Capital, expected further tightening, with another 25 basis points hike in coming months, as high inflationary pressures persist.
The benchmark 30-share Sensex index erased most of its 1.5 percent intraday gain when rates were hiked but recovered marginally to close at 16,933.83, up 0.34 percent.
Industry leaders slammed the hike and called for a boost to reforms.
“Urgent action is required to step up growth momentum in the manufacturing sector,” said Chandrajit Banerjee, director-general, Confederation of Indian Industry.
“Without this, we are concerned about a serious deceleration in the industrial growth rate.”
Latest data show that the blistering pace of growth in Asia’s third largest economy is already slackening. Industrial output grew just 3.3 percent year-on-year in July — its slowest in nearly two years.
And last month, India posted its slowest gross domestic product growth in six quarters, rising 7.7 percent year-on-year.
A rash of interest rate rises has dampened consumer demand in a range of sectors from cars to property, and could hit spending as India’s festive season reaches its peak with the Hindu festival of lights, Diwali, in October.

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NEW DELHI: India’s state-owned energy firms on Thursday hiked petrol prices by five percent to help stem losses from high crude prices — a rise seen as fuelling stubbornly high inflation.
The increase, taking effect Friday, is the second price rise in four months.
India’s Congress-led government in June 2010 deregulated petrol prices in a reform aimed at reducing the massive subsidies it pays to state-run fuel companies, which rely on imported energy.
Petrol prices are being raised by 3.14 rupees a litre to 66.84 rupees in New Delhi and by similar amounts in the rest of the country, Indian Oil Corp, the nation’s largest fuel retailer, said in a statement.
The latest rise comes as the government battles mounting unpopularity over inflation, which is at a 13-month peak of 9.78 percent — the highest among major global economies — and a slew of corruption scandals.

India’s central bank holds a policy meeting on Friday at which interest rates are expected to be raised for a 12th time since March 2010 in a bid to curb rising prices.
The opposition immediately condemned the petrol price hike, saying it would be “inflationary” and demanding a rollback.
Any more cylinders would have to be bought at market prices which are almost double the subsidised price, the news agency said.
When it freed up prices for petrol, seen as a fuel mainly used by middle-class Indians, the government kept control of cooking gas and kerosene prices to protect the poor — the Congress party’s key supporters — against price shocks.
India relies on imported crude oil, and even after the price hike, the state-run fuel firms will still be losing money on sales at the petrol pump, the Press Trust of India said.
A sharp fall in the value of the rupee against the dollar has increased the state-owned fuel companies’ losses.