India’s central bank has hiked interest rates for the first time in over four years amid worries over rising prices.
The Reserve Bank of India announced Wednesday that it would increase the rate at which it lends to banks from 6% to 6.25%.
The bank cited a recent spike in oil prices as one of the main factors in its decision. Brent crude — the global benchmark — crossed $ 80 a barrel last month before falling back a little to trade at just over $ 75 on Wednesday.
India has sought assurances from Saudi Arabia, OPEC’s biggest producer, that the price of oil would remain “stable and moderate.”
Rising oil prices and a weaker rupee — which makes imports, including oil, more expensive — have sparked concerns that inflation could take the edge off India’s robust economic growth.
“The rationale behind the rate hike stems largely from the outlook for inflation,” said Shilan Shah, senior India economist at Capital Economics. Stronger growth and rising inflation could result in further interest rate rises in the months to come, he added.
Overall inflation rose from 3.9% to 4.2% between March and April, while retail price inflation jumped to 4.6%.
India’s economy grew at 7.7% in the quarter ended March, a big jump from 7% growth in the previous quarter.
India is the fastest growing major economy in the world, outpacing China.