Business & Economy

India’s central bank hikes lending rate to tame rising inflation

New Delhi, June 8 (EFE).- India’s central bank Wednesday hiked its lending rate for the second time in about a month to tame the rising cost of essential and non-essential goods amid the global economic crisis triggered by the Ukraine war.

The new surge of 50 basis points on lending rates comes after the Reserve Bank of India announced a surprise increase from 4 to 4.40 percent in May.

“The war in Europe is lingering and we are facing newer challenges each passing day which is accentuating the existing supply chain disruptions. As a result, food, energy, and commodity prices remain elevated,” RBI Governor Shaktikanta Das said.

Das noted that the war had led to “globalisation of inflation” as countries across the world were facing “persistent demand-supply imbalances” and costs rising “at decadal highs.”

He said the emerging market economies were facing “bigger challenges” from increased market turbulence, monetary policy shifts in advanced economies, and spillovers.

India’s economy bounced back strongly from the Covid-19 pandemic and a months-long shutdown that had forced the bank to maintain accommodative financial policies, slashing interest rates to historically low levels to ease financial stress and improve access to capital.

But the country is now grappling with surging costs even as the bank withdrew the ultra-accommodative stance in May when it raised the interest rate by four basis points to 4.40 percent, the first since mid-2020.

In the last four months, India’s inflation exceeded the tolerance level of 6 percent, reaching 7.8 percent in April, the highest in the eight years.

It was the fourth consecutive month when inflation touched or was above the upper tolerance level, with no end in sight for the rising prices at least this year.

Das projected the inflation rate to stay around 6.7 percent during the current financial year assuming “a normal monsoon and the average price of crude oil to be $105 a barrel.

He stressed that the Indian economy was “resilient, supported by strong macroeconomic fundamentals and buffers,” but inflation “steeply increased much beyond the upper tolerance level.”

The RBI head said the GDP growth for 2022-23 would be 7.2 percent “with risks broadly balanced” – broadly retaining the projection on lines of the bank’s monetary policy committee resolution in April this year. EFE


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