RBI Defies Expectations

The Reserve Bank of India unexpectedly raised its policy interest rate on Tuesday by 25 basis points but said that if consumer price inflation eases as projected it does not foresee further near-term tightening.

The policy decision was driven by an expectation that consumer price index (CPI) inflation will remain high, an indication that the RBI is looking to adopt a recent proposal to base its policy rate decisions on a CPI target.

The RBI raised its policy repo rate by 25 basis points to 8.00 percent.  Most economists in a Reuters poll conducted last week had expected no change in rates. However, expectations for a rate hike had increased after a central bank panel proposed to make CPI the main inflation benchmark.

Reuters

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