Zürcher Nachrichten - Indian central bank hikes rates for first time in more than 3 years

The Reserve Bank of India (RBI) said the benchmark repurchase rate, the level at which it lends to commercial banks, would be raised by 25 basis points to 5.50 percent after a unanimous vote by a six-member panel.

In doing so, the RBI shifted gears to join several central banks around the world who have raised rates to curb price rises or boost their currencies.

Since the outbreak of the Iran war in February, the RBI has stood pat as it waited to assess the impact of volatile oil prices on the world's fastest-growing major economy.

But resilient GDP growth last quarter has allowed it to focus on higher costs in a country that imports most of its energy and has been hit by a weak monsoon that could result in a spike in food prices.

Retail inflation rose to 4.82 percent in August -- the third straight month that headline inflation breached the RBI's medium term target of four percent -- with data signalling that inflationary pressures had spread beyond food and transport.

Adding to the central bank's calculations is pressure on the Indian rupee, which has been at near record lows over the past week.

To stem the fall, the RBI has rolled out an array of moves to woo dollar inflows, including a deposit scheme for the Indian diaspora that raked in around $127 billion.

While the steps helped stop the rupee's losses, the currency has faced fresh challenges as foreign investors continue to dump Indian equities and crude hovers around $100 a barrel.

India, the world's third-largest buyer of oil, normally sources about half of its crude through the Strait of Hormuz, which has been effectively closed since the beginning of the Middle East war.

Analysts say this makes India among the most vulnerable economies to a global energy shock, as higher crude and fertiliser prices drive up the import bill.

R.Bernasconi--NZN