India’s central bank has upped its campaign against inflation, raising rates by half a percentage point, twice previous rate rises. This is the first half point rate rise since 2008 (see chart).
The move comes despite “signs of moderating growth” in the economy, which shows how worried the Bank is about inflation. Strong consumer demand in the country has aggravated the global issue of rising commodity prices, adding to domestic inflationary pressures. That strong demand, in turn, has probably been encouraged by relatively low rates. Indeed, according to the Bank:
…demand has been strong enough to allow significant pass-through of input price increases. Importantly, this is happening even as there are visible signs of moderating growth, particularly in capital goods production and investment spending, suggesting that cumulative monetary actions are beginning to have an impact on demand [emphasis ours]