India unexpectedly hikes rates a quarter point
India's central bank has unexpectedly hiked key interest rates a quarter of a percentage point, as the bank tries to cool high inflation amid a faster-than-expected economic rebound.
The bank raised the benchmark repo rate - at which the central bank makes short-term loans to commercial banks - to 5 percent and raised the reverse repurchase rate - the rate at which it borrows from commercial banks - to 3.5 percent, with immediate effect.
"These measures should anchor inflationary expectations and contain inflation going forward," the Reserve Bank of India said in a statement after trading hours Friday. "As liquidity in the banking system will remain adequate, credit expansion for sustaining the recovery will not be affected."
Most economists had expected a rate hike, but not until the bank's scheduled policy meeting on April 20.
The bank said robust growth in manufacturing, a revival of investment, expanding exports and increasing bank credit gave it confidence that economic growth is consolidating.
Inflation, however, has become a growing concern. Headline Wholesale Price Index inflation for February was 9.9 percent, higher than the bank expected, and inflation is spreading from drought-induced high food prices into other sectors of the economy, like manufactured goods.