India raises interest rates to 5.4%, the 3rd hike since May

NEW DELHI (AP) — India’s central bank on Wednesday raised its key rate by 50 basis points to 5.4% in its third such hike since May, as it focuses on containing inflation .

Reserve Bank of India Governor Shaktikanta Das has forecast inflation of 6.7% this fiscal year. June was the sixth consecutive month with inflation above the central bank’s 6% tolerance level, he said in a statement after a meeting of the bank’s supervisory committee.

The committee decided “to remain focused on withdrawing accommodative measures to ensure inflation remains on target going forward while supporting growth,” he said.

Das said the global economic and financial environment has deteriorated, with the combined impact of tighter monetary policy around the world and the war in Ukraine increasing recession risks.

The Indian rupee plunged to an all-time low of 79.05 rupees to the US dollar. Das attributed its weakness to the strengthening dollar as interest rates rise in the United States.

Multiple waves of COVID-19 outbreaks have hit India’s vast informal sector and contact-intensive services like restaurants, hotels, retail and tourism hard.

Unemployment has soared to nearly 8%, according to data from the Center for Monitoring Indian Economy think tank.

The main opposition Congress party held marches across the country on Friday to protest against rising prices for petrol, gas, food and goods and the tax on services.

Indian Finance Minister Nirmala Sitharaman defended the government’s handling of the economy in parliament earlier this week. She said there was no likelihood of India falling into recession, although some other major economies were at greater risk of falling into recession.

On Friday, Das forecast the economy to grow at an annual rate of 7.2% in the current fiscal year, which ends in March 2023, slowing to 6.7% in the next fiscal year.

“In terms of growth prospects, rural consumption should benefit from improving agricultural prospects,” he said. Demand for services as the pandemic subsides and an improvement in business and consumer confidence should boost discretionary spending and urban consumption, he said.

The International Monetary Fund has forecast economic growth of 7.4% for India in 2022, down from 8.7% in 2021 and sliding to 6.1% in 2023.

The IMF suggested on Thursday that India should gradually withdraw fiscal and monetary stimulus, develop better infrastructure for exports, such as ports and railways, and increase shipments by concluding trade agreements. free trade with key trading partners to maintain the balance of its economy in the medium term.

Former RBI Governor Raghuram Rajan said earlier this week that India should focus on services instead of blindly following China’s model of manufacturing-led growth.

Even though India’s economy is growing faster than many other countries, he said the country still needs more growth to sustain its huge population, which currently stands at 1.4 billion and is expected to exceed that of China within a few years.

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Stephen V. Lee