India Raises Interest Rate to 5.4 Percent, in 3rd Hike Since May

NEW DELHI–India’s central bank on Friday raised its key interest rate by 50 basis points to 5.4 percent in its third such hike since May as it focuses on containing inflation.

Reserve Bank of India Governor Shaktikanta das projected that inflation would be 6.7 percent this financial year. Inflation was at 6.6% for six consecutive months in June, said Shaktikanta Das after meeting with the monitoring committee of the Bank.

The committee decided to “remain focused on the withdrawal accommodation to ensure inflation remains within target going forward while supporting growing,” he stated.

Das stated that the global financial and economic environment is in decline due to the combination of tightening monetary policy around the globe and war in Ukraine, which raises the risk of recession.

The Indian rupee has plunged to an all-time low of 79. 05 rupees to one U.S. dollar. Das blamed the weakness on a stronger dollar due to rising interest rates in the United States.

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

According to the data of Center for Monitoring Indian Economy, Unemployment rose to almost 8 percent.

The main opposition Congress party organized protest marches throughout the country on Friday against rising petrol prices, food and fuel costs, as well as the service tax.

People shop at a wholesale market in Mumbai, India, on Aug. 5, 2022. (Rajanish Kakade/AP Photo)

Indian Finance Minister Nirmala Sitharaman has defended government’s economy management in Parliament this week. She stated that India is unlikely to fall into recession, despite the fact that there are other large economies at higher risk.

On Friday, Das projected that the economy would expand at a 7.2 percent annual pace in the current fiscal year, which ends in March 2023, slowing to 6.7 percent in the next financial year.

” Rural consumption will benefit from better agricultural prospects, which is good news for the future. He said that the decline in demand for services and an increase in consumer and business sentiment will lead to a rise of discretionary spending as well as urban consumption.

Considering that inflation is still above target, Shilan Shah from Capital Economics stated in a report that he forecasts a 1 percent increase in hikes early next year.

The International Monetary Fund has projected 7.4 percent economic growth for India in 2022, down from 8.7 percent in 2021 and slipping to 6.1 percent in 2023.

The IMF suggested Thursday that India gradually withdraw its fiscal and monetary stimulus, build better infrastructure for exports such as ports, railways and railroads and increase shipments through free trade agreements. This would ensure India’s economy remains balanced in the medium-term.

By Ashok Sharma