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India Raises Interest Rates by 25 Basic Points

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India on Friday raised key Repo Rate and Reverse Repo Rate by 25 basis points up to 5 percent and 3.5 percent respectively.

The upward adjustment will increase the cost of short-term borrowing from the Central Bank to commercial banks and vice versa.

The Reserve Bank of India said that the measures should anchor inflationary expectations and contain inflation forward in the light of adequate liquidity in the banking system.

Significant developments have taken place in the macroeconomic situation and inflation since its last policy review meeting in the end of January 2010, according to the announcement.

It's stated that it's better to take timely monetary moves to curb inflation expectations than late bolder measures to crank up interest rates.

Indian economy is believed in continuous recovery with firm growth of industrial products, capital goods, export and gross domestic product, while near 10 percent increase of wholesale product price index triggers concerns on inflationary outlook.

The Central Bank adjusted up the cash reserve ratio for commercial banks by 75 basis points in the last meeting of policy review in January, marking significant move to roll back its stimulus package, introduced from December 2008 to early 2009.

(Xinhua News Agency March 20, 2010)

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