India hikes interest rates

Concerned over inflation nearing a double-digit mark, the Reserve Bank of India (RBI) yesterday increased short-term interest rates for the second time in a month.
The central bank raised the repo -- the rate at which it lends to commercial banks -- by 25 basis points to 5.25 percent and the reverse repo -- the rate it pays to banks for deposits -- by the same amount to 3.75 percent.
These increases were announced by RBI Governor Dhuuvuri Subbarao in the central bank's annual Monetary and Credit Policy for financial year 2010-11 in Mumbai.
RBI said lower policy-rates can impair inflationary expectations.
The hike in repo and reverse rates was expected and came a day after the central bank in its macroeconomic survey cautioned against the risk of hardening inflation expectations on account of supply side, international commodity prices, especially of crude oil and industrial inputs, which have been rising in recent months.