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India hikes interest rate in a bid to rein in inflation | India hikes interest rate in a bid to rein in inflation |
(about 4 hours later) | |
India's central bank has raised interest rates as it continues to fight rising prices in the country. | India's central bank has raised interest rates as it continues to fight rising prices in the country. |
The Reserve Bank of India raised the cost of borrowing from 7.25% to 7.5%, the 10th rise since March 2010. | The Reserve Bank of India raised the cost of borrowing from 7.25% to 7.5%, the 10th rise since March 2010. |
Wholesale prices in India rose by a faster-than-expected 9.06% in May, as rising food and fuel costs kept up the pressure on inflation. | |
Rising prices have become a hot political issue in India, Asia's third-largest economy. | |
"Inflationary pressures, primarily from commodity prices, have increased," the bank said in a statement. | "Inflationary pressures, primarily from commodity prices, have increased," the bank said in a statement. |
"Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high," the central bank added. | "Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high," the central bank added. |
Growth concerns | Growth concerns |
While India's economy emerged strongly from the global financial crisis, rising cost of food and other essential commodities have become a big concern. | While India's economy emerged strongly from the global financial crisis, rising cost of food and other essential commodities have become a big concern. |
Prime Minister Manmohan Singh has called inflation a "serious threat" to the country's growth. | Prime Minister Manmohan Singh has called inflation a "serious threat" to the country's growth. |
As a result, the central bank has been raising the cost of borrowing in the country in an attempt to slow down demand and keep prices under control. | As a result, the central bank has been raising the cost of borrowing in the country in an attempt to slow down demand and keep prices under control. |
Analysts say that as it becomes more expensive to borrow money, growth is likely to be hit. | Analysts say that as it becomes more expensive to borrow money, growth is likely to be hit. |
"The tightening will reduce GDP growth to 7.4% this year," said Dariusz Kowalczyk of Credit Agricole CIB. | "The tightening will reduce GDP growth to 7.4% this year," said Dariusz Kowalczyk of Credit Agricole CIB. |
However, the bank said that fighting rising prices was its top priority and it recognised that growth could be hit in the short term. | However, the bank said that fighting rising prices was its top priority and it recognised that growth could be hit in the short term. |
"In the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control," it said. | "In the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control," it said. |
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