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India’s new central banker hikes key interest rate

September 20, 2013

MUMBAI, India (AP) — India’s new central bank chief has raised the benchmark interest rate by a quarter percentage point, putting a higher priority on fighting stubbornly high inflation than stimulating flagging economic growth.

The Reserve Bank of India said Friday it would raise the rate at which banks borrow from it to 7.5 percent. It cited the likelihood that inflation would be higher than expected for the rest of the year. The inflation rate spiked to 6.1 percent in August.

It was the central bank’s first monetary policy review under new governor Raghuram Rajan, who is a former IMF chief economist.

India’s economy is suffering from slowing low growth and high inflation.

The surprise rate hike sent Indian stocks into a tailspin. The Sensex index was down 2.5 percent.

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