India's central bank raised interest rates for the sixth time this year on Tuesday to try to tame stubbornly high inflation but said there was little chance of another increase in the near term. The Reserve Bank of India (RBI) raised its lending and borrowing rates by 25 basis points each, as expected by most analysts, and pledged to remain vigilant about inflation, which at 8.6 percent is well above policymakers' comfort level.
"Clearly, the RBI plans to pause in its tightening cycle at least until H1 2011 but they can't be complacent given an economy on a strong footing, and both actual inflation and expectations are high," said Sean Callow, senior currency strategist at the Westpac Institutional Bank in Sydney. The RBI lifted the repo rate, at which it lends to banks, to 6.25 percent and raised the reverse repo rate, at which it absorbs excess cash, to 5.25 percent.
A majority of analysts polled by Reuters after the policy review said they expect one more 25 basis point rate increase by the end of the fiscal year in March 2011. The RBI's next policy review is on December 16. Both India and Australia announced rate rises on Tuesday to temper strong rebounds from the global financial crisis, in contrast to faltering recoveries in much of the developed world that are pressuring the US and Japanese central banks to relax further their already super-loose monetary policy.
The US Federal Reserve is widely expected to announce on Wednesday that it will inject about $500 billion into its financial system, a measure that could ultimately prove inflationary for emerging economies such as India. Several Asian central banks are tightening policy - most lately China and Singapore - but a flood of investment money hitting emerging markets has prompted some countries, such as Thailand, to put plans for rate increases on hold.