India raises policy rate by 25 bps in first hike in nearly four years

On Wednesday, the Reserve Bank of India lifted its benchmark repo rate to 5.5%, a rise of 25 basis points and its first move in nearly four years, according to Business Recorder. The six-member panel backed the decision unanimously and shifted the policy stance from neutral to "calibrated tightening". Governor Sanjay Malhotra noted in the policy address that the inflation outlook had lost its benign character.

Consumer inflation rose to 4.82% in August from a year earlier, and it has now stayed over the 4% medium-term target of the Reserve Bank of India for three months running. Costlier fuel linked to the Iran war, weak monsoon rains tied to El Niño and higher food prices are feeding through the economy. Nearly half of the categories in the consumer basket now show inflation above 4%. A Reuters survey found that nearly 60% of economists had anticipated a quarter-point rise.

Growth remains firm, with GDP expanding 7.8% in the April to June quarter, well ahead of the central bank's 7% forecast. That strength gives policymakers more room to make borrowing costlier for consumers and businesses.