India continues to raise interest rates

The key interest rate rose 0.5 percentage points to 4.90%, a month after the RBI triggered a cycle of aggressive monetary tightening with a surprise rate hike of 0.4 percentage points in May. 2022.

Indian Rupee. (Photo: Reuters)

RBI Governor Shaktikanta Das said on television: “The conflict in Ukraine is not over and we are increasingly facing new challenges”, including rising food and fuel prices. high.

“Inflation is a global issue, but emerging economies face ‘greater challenges’ following monetary policy changes in advanced economies,” he added.

Although India has just recovered strongly from the COVID-19 pandemic and is among the fastest growing, it is now facing increasing costs as world commodity prices are flat. higher.

From January to April 2022, consumer price inflation was continuously higher than the country’s target level of 2-6%, and increased to 7.79% in April 2022, the highest level in the past 8 years.

Na Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, said that despite efforts to control prices, inflation is likely to remain around 7% in the near future.

The Indian economy has seen strong price increases, including for fuel and food. Last month, the government had to ban wheat exports to curb prices after a heatwave affected crops.

Authorities have also capped sugar exports to protect supplies and reduced fuel and cooking oil taxes to support consumers.

India imports more than 80% of its crude oil needs and is increasingly dependent on imported supplies due to reduced domestic production. India is also facing rising gasoline prices.

According to estimates by economists, every 10 USD/barrel increase in North Sea Brent oil price leads to an increase in consumer inflation in India by 0.25 percentage points.

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