India raised interest rates for the 12th time in 18 months and signalled more was to come, confounding expectations that it was coming to the end of its tightening cycle and putting it at odds with global peers focused on reviving weak demand. The Reserve Bank of India lifted its policy lending rate, the repo rate , by 25 basis points to 8.25 percent, in line with expectations, in a campaign that has done more to slow growth than contain near double-digit inflation.
The central bank said it was too soon to ease back from its anti-inflationary bias. Investors had expected one more rate increase before heading for a pause. A Reuters poll after the policy statement showed economists now expect at least one more rate rise this year. "A premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance," it said in a statement.
The RBI's hawkishness, which saw it raise rates by an unexpectedly steep 50 basis points in July, makes it an outlier as other central banks turn dovish on the back of a festering global crisis. The US Federal Reserve has pledged to keep interest rates near zero for two years, while emerging heavyweights Brazil and Indonesia have eased policy.
India's headline inflation for August rose to 9.78 percent, its highest in a year and also highest among the BRIC contingent that includes Brazil, Russia and China. Growth and demand, however, have cooled following the cumulative impact of earlier rate increases and rising prices.
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