New Delhi: The Reserve Bank of India (RBI) raised interest rates for the first time in over four years Wednesday, highlighting concerns over rising inflation.
The RBI said the benchmark repo rate — the level at which it lends to commercial banks — would be increased by 25 basis points to 6.25 percent.
The rate was last hiked in January 2014 when it hit 8.0 percent before a series of cuts.
Retail inflation recently touched 4.58 percent, above the target set by the RBI’s monetary policy committee (MPC).
It is being stoked by rising oil prices and increased consumer spending as country’s economy turns a corner following a number of disruptive measures.
A predicted normal monsoon is also expected to sustain the nation economy’s growth — for which agriculture is a cornerstone — over coming months.
“Against the above backdrop, the MPC decided to increase the policy repo rate by 25 basis points and keep the stance neutral,” said a bank statement.
“The MPC reiterates its commitment to achieving the medium-term target for headline inflation of four per cent on a durable basis,” it added following its meeting in the financial capital Mumbai.
Analysts had been divided over whether the RBI would hike rates now or wait until its next meeting in August when the monsoon would be almost two months old.
The country’s economy has shown signs of revival in recent months due to a boost in manufacturing and consumer demand after a downturn blamed on a shock cash ban in late 2016.
Demonetisation withdrew most of high-value banknotes from circulation, putting a brake on the economy.
The launch of a new nationwide goods and services tax (GST) last year also hit growth.
But last week government said its GDP for the first quarter expanded by 7.7 percent — the highest in two years.
The country imports nearly 80 percent of its oil, making it highly vulnerable to the increasing cost of crude. Prices at petrol pumps recently hit record highs.
The RBI last cut its main interest rate in August, snipping off 25 basis points to 6.0 percent.