Indian growth prospects 'positive' despite rate hike

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MUMBAI, June 26 (AFP): Indian government said yesterday the country's economic growth outlook was "positive" despite a fresh round of monetary tightening by the central bank to tackle high inflation.

But economists said the Reserve Bank of India (RBI) can be expected to continue to raise interest rates in the coming months, with inflation rates set to remain stubbornly high.

On Tuesday the central bank raised its repo rate at which commercial banks borrow funds from the central bank to 8.5 per cent from 8.0 per cent with immediate effect.

It also announced a two-stage hike of the cash reserve ratio, or the amount of cash banks must hold in reserve, by 25 basis points to 8.50 per cent effective July 5, and by another 25 basis points to 8.75 per cent on July 19.

"These steps are necessary in the face of rising inflation due to relentless increase in crude oil prices," a finance ministry statement said Wednesday, adding the RBI needed to "moderate and manage aggregate demand."

Inflation in Asia's third-largest economy rose to a 13-year high of 11.05 per cent in the week ended June 7, well above the RBI's declared comfort level of 5.5 per cent.

Price rises have overshadowed better-than-expected growth of 9.0 per cent in the past fiscal year.