India’s new central bank governor has raised interest rates for the second consecutive month by a quarter of one percent to 7.75% to try to fight inflation.
The move applies only to the repo rate – the rate at which the central bank lends to commercial banks.
The cash reserve ratio – the percentage of banks’ deposits they must keep in cash – has been kept unchanged.
India’s inflation hit a seven-month-high annual rate of 6.46% in September.
“The policy stance and measures … are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth,” bank chief Raghuram Rajan said in a statement.
“It is important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth,” he said.
India’s main share index rose 0.20% to 20,611.27 points after Mr Rajan’s announcement.
Mr Rajan, who took over as the head of the central bank in September, surprised markets by raising interest rates in his first monetary policy meeting.
India’s economy has been hurt by a range of factors in recent months.
A slowdown in key sectors such as mining and manufacturing has curbed its growth rate.
At the same time, foreign investors have pulled out money from the country because of the government’s failure to enact key reforms, as well as improving economic conditions in the US.