India has raised interest rates in the face of persistently high inflation as the country’s economy continues to outpace growth forecasts, according to Financial Times. On Tuesday, the Federal Reserve Bank of India increased its main policy rate by 25 basis points, which move the repo rate to 6.5% and marks its highest level in almost three years. The move was the central bank’s first interest rate increase since November.
The increase in the policy rate was expected by many economists to be larger, but slowing industrial production towards the end of 2010 tempered officials’ response to high inflation. In December, the wholesale price index for India was seen 8.4% higher, accelerating for the 7.5% increase posted during the previous month. Analysts are expecting the central bank to raise the repo rate by 1% in total during 2011, and many expect the government to move to limit emergency spending measures that have boosted the India’s strong economic recovery.
