India's central bank has increased its key interest rate to 9% from 8.5% in a bid to dampen surging inflation.
It is the third time in two months that Indian interest rates have risen and more rate rises are expected. Inflation is running at a 13-year high, driven by the soaring cost of food and fuel which is biting into the spending power of India's poor. Many Asian countries are facing the same problem, threatening to curb rapid economic growth. In an attempt to discourage lending, the Indian Reserve Bank also raised the level of minimum cash reserves banks must hold in relation to customer deposits. India's main stock index, the Sensex, tumbled after the rate rise on worries that car and home loans will become more expensive, slowing consumer spending.
It closed down 557.6 points, or 3.9%, at 13,791.54 - a one-week low. "The hikes were above consensus. We expect lending and deposit rates to rise further and growth to slow significantly," said Macquarie Securities analyst Seshadri Sen. But Reserve Bank Governor Y. Venugopal Reddy said that compared with the rest of the world, the drop in growth rates would be marginal.
It is the third time in two months that Indian interest rates have risen and more rate rises are expected. Inflation is running at a 13-year high, driven by the soaring cost of food and fuel which is biting into the spending power of India's poor. Many Asian countries are facing the same problem, threatening to curb rapid economic growth. In an attempt to discourage lending, the Indian Reserve Bank also raised the level of minimum cash reserves banks must hold in relation to customer deposits. India's main stock index, the Sensex, tumbled after the rate rise on worries that car and home loans will become more expensive, slowing consumer spending.
It closed down 557.6 points, or 3.9%, at 13,791.54 - a one-week low. "The hikes were above consensus. We expect lending and deposit rates to rise further and growth to slow significantly," said Macquarie Securities analyst Seshadri Sen. But Reserve Bank Governor Y. Venugopal Reddy said that compared with the rest of the world, the drop in growth rates would be marginal.
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