The Indian central bank announced Wednesday an unexpected increase of 0.4% in its interest rates, the third economy of Asia suffering from high inflation due to the war in Ukraine.
Reserve Bank of India (RBI) Governor Shaktikanta Das said he would raise the key rate by 40 basis points to 4.40% with immediate effect. This is the first increase in borrowing rates since August 2018.
The surprise hike ends two years of record low interest rates and comes hours before the U.S. Federal Reserve is to make its biggest rate hike in two decades to respond to accelerating inflation in the world’s largest economy. .
Asia’s third largest economy has rebounded strongly from the pandemic with one of the fastest growth rates in the world but is now facing rising costs due to soaring commodity prices.
Consumer price inflation consistently exceeded the RBI’s 26% target in the first three months of the year, reaching 6.95% in March, its highest level in 17 months.
Economists expect inflation to top 7% in April.
India is the world’s largest importer of edible oils such as palm oil and soybean oil, which are trading at record highs.
This country of 1.4 billion people also imports more than 80% of its oil needs, its dependence on foreign crude increasing with the decline in domestic production.
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Last month, the six members of the RBI’s Monetary Policy Committee (MPC) voted to keep the policy rate at a historic low of 4% for the eleventh consecutive meeting.
But in signaling for the first time a possible rate hike, Das said the committee was focused on withdrawing accommodative measures to ensure inflation remained on target, while supporting growth.
The Committee also lowered its growth forecast to 7.2% for the 2022-23 fiscal year from 7.8% previously forecast.
He raised his inflation forecast to 5.7% for the fiscal year which began April 1, from 4.5% in February.