India's central bank raises interest rate to fight inflation

India’s central bank has raised its key interest rate to 4.9% from 4.4% to contain fast-rising inflation

India Economy (Copyright 2018 The Associated Press.All right reserved)

India’s central bank on Wednesday raised its key interest rate to 4.9% from 4.4%, the second such hike in the last three weeks to contain inflation.

Reserve Bank of India Governor Shaktikanta Das said the decision was aimed at curbing price increases and mitigating the impact of geopolitical tensions, like the war in Ukraine.

“Upside risks to inflation … materialized earlier than expected," Das said.

Wednesday’s increase follows a 40 basis points rise in May.

The central bank raised its inflation projection for 2022-23 to 6.7% from 5.7% and kept its forecast for growth this year at 7.2%.

The war in Ukraine is giving rise to "newer challenges each passing day which is accentuating the existing supply chain disruptions. As a result, food, energy and commodity prices remain elevated,” Das said.

The price spikes have impacted consumer spending, which accelerated to an eight-year high of nearly 7.8% in April, according to official data.

India’s economy expanded at a 4.1% annual pace in the January-March quarter, following 5.4% growth in the previous quarter. Overall, the economy grew 8.7% in the 2021-22 financial year, slower than the 8.9% estimated by the government.