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India’s central bank raises interest rate to tame inflation

NEW DELHI (AP) – India’s central bank yesterday raised its key interest rate to 4.4 per cent from four per cent to try to contain fast-rising inflation.

Reserve Bank of India Governor Shaktikanta Das said after an unscheduled meeting of the bank’s monetary policy committee that the central bank would maintain an “accommodative” stance to help support the economy while keeping inflation in check.

India’s consumer price index (CPI) surged to seven per cent in March from 6.1 per cent in February, largely reflecting higher costs for imports of coal, oil and food. Das mentioned global shortages of wheat and edible oil as factors.

The RBI has set a medium-term target for CPI inflation of four per cent within a band of plus or minus two per cent, Das said.

He expressed concern that the deteriorating global situation amid the war in Ukraine was causing a ‘tectonic shift’ in commodity markets, trade and financial linkages.

“Looking ahead, further rate hikes look nailed on. After all, the rise in headline inflation has further to run,” Shilan Shah of Capital Economics said in a report.

In 2020, the RBI cut its benchmark rate – the interest the central bank charges on lending to commercial banks – from 5.1 per cent to four per cent, the lowest level since March 2010, to ease financing woes during the pandemic.

A man watches a screen showing Russian President Vladimir Putin on the facade of the Bombay Stock Exchange building in Mumbai. PHOTO: AP