India raises benchmark interest rate to 4.4% amid rising inflation

SINGAPORE (ICIS)–India’s central bank late on Wednesday raised its benchmark interest rate in a bid to rein in high consumer prices, the first change in the rate in two years.

The Reserve Bank of India (RBI) in an off-schedule move raised its repo rate by 40 basis points (bps) to 4.4%, the first rate hike in 45 months since August 2018.

The repo rate is the rate at which the RBI lends money to commercial banks.

The RBI also announced a 50 basis point increase in the cash reserve ratio – the percentage of cash that banks need to keep in reserve against their total deposits – to 4.5% to drain Indian rupee (Rs) 870bn worth of liquidity from the system.

“Inflation-sensitive items relevant to India such as edible oils are facing shortages due to the conflict in Europe and export bans by key producers,” RBI governor Shaktikanta Das said.

The jump in fertilizer prices and other input costs has a direct impact on food prices in India, he added.