India's Central bank has hiked interest rates in a bid to tackle inflation
which is at its highest rate in over a decade. But as Anjana Pasricha reports
from New Delhi, there are fears the measure will slowdown growth in one of the
world's fastest growing economies.
The latest hike of half a
percentage point in interest rates announced Tuesday by the Central Bank came as
The Central Bank has been steadily raising interest rates
in recent months in a bid to discourage people from borrowing money, and cool
consumer demand. The Bank's lending rate will now be nine percent.
government hopes this will help lower inflation, which is running at nearly 12
percent - the highest in 13 years.
The inflation is
worrisome for policymakers in a country where, despite high economic growth, 500
million people live on less than $2 a day. These people have been
hit hard by
the runaway food and fuel prices in the past year.
The government, which
faces elections in several big states later this year, and general elections
next year, says bringing down prices is a priority.
Managing Director of India's largest bank, ICICI, Chanda Kochar, says raising
interest rates will bring down inflation in the months to
"Inflation will, with all these measures, expected to be brought
down to seven percent
by March 09. To achieve that if we have to, as an
economy, go through some amount of pain, we have to accept it and move forward,"
But the steady increase in interest rates in the past year is
expected to dampen economic growth. The Indian economy grew at nine percent last
year - the second highest in the
world after China. But the Central Bank
forecasts that growth this year may slow down to eight percent.
Industries say they have to postpone expansion plans as borrowing
becomes more expensive. They are also worried that slowing consumer demand will
mean lower profits.
Worries about a slowing economy are impacting
stock markets. The Bombay stock index, the Sensex, plunged by 557 points - more
than four percent after the latest
interest hike was announced on Tuesday.