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India’s central bank raises interest rate to fight inflation

NEW DELHI (AP) – India’s central bank yesterday raised its key interest rate to 4.9 per cent from 4.4 per cent, 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.

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

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

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 per cent in April, according to official data.

India’s economy expanded at a 4.1 per cent annual pace in the January-March quarter, following 5.4 per cent growth in the previous quarter. Overall, the economy grew 8.7 per cent in the 2021-22 financial year.

A security guard stands at the entrance of the Reserve Bank of India in Mumbai, India.