MUMBAI: India on Thursday hiked interest rates for the eighth time in a year and warned more rises loomed as concern about high inflation outweighed worries over the fragile global economic recovery.
The central bank raised its repo, the rate at which it lends to commercial banks, by 25 basis points to 6.75 percent. The reverse repo, the rate it pays to banks for deposits, was also hiked by a quarter point to 5.75 percent.
"Underlying inflationary pressures have accentuated, even as risks to growth are emerging," Reserve Bank of India governor Duvvuri Subbarao said in a statement after a policy meeting in Mumbai.
India's central bank has been Asia's most aggressive in raising rates as the country powers out of the global financial downturn with growth of nine percent projected for the next financial year starting April 1.
But the inflation rate remains stubbornly above eight percent.
The bank said it was too early to assess the "macroeconomic consequences" of the devastating Japanese quake and nuclear crisis, but warned a shift away from nuclear power could push up already elevated petroleum prices, stoking domestic inflation.
The bank added that turmoil in the Middle East and North Africa was "adding uncertainty to the global recovery" on top of high food and other commodity prices.
Bank policymakers promised to maintain their hawkish stance, while "minimising the risks to growth" by not tightening monetary policy too sharply at one go.
"The Reserve Bank is likely to persist with the current anti-inflationary stance," the bank said in the statement.
Inflation has been one of the biggest problems for the embattled Congress-led government, which is also reeling from a slew of corruption scandals.
Poorer households, the backbone of the Congress party's support, have been especially hard hit by the increased cost of living.
"Inflation risks clearly remain the dominant concern, especially considering the current dangerous cocktail of elevated food prices, rising international commodity prices and demand-led inflation pressures," said HSBC chief India economist Leif Lybecker Eskesen.
Analysts said they expected up to 75 basis points in rate rises this year.
Thursday's hike "was a modest increase, indicating more tightening," said Rupa Rege Nitsure, chief economist at the state-run Bank of Baroda.
The central bank's move comes as its peers across Asia including China, South Korea, Thailand and Vietnam have also tightened monetary policy to counter rising prices.
While food inflation in India has fallen from peaks of 20 percent in early 2010, it remains high at 9.42 percent, according to data released Thursday.
Data earlier in the week showed that overall inflation unexpectedly accelerated to 8.31 percent in February from 8.23 percent the previous month.
Subbarao revised upward the bank's forecast for annual inflation for the current fiscal year ending March 31, 2011, to 8.0 percent from an earlier projection of 7.0 percent.
Economists now say inflation, initially fuelled by spiralling food prices, has spilled over into the general economy, pushing up wages and other costs.
India's 30-share benchmark Sensex index, already weak in line with soft Asian markets, showed little reaction to the central bank's move.
The index closed down 1.14 percent or 208.82 points at 18,149.87.
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