India's central bank raises key lending rate to 6.25 percent

MarketsAssociated Press

India's central bank on Wednesday raised its key interest rate by a quarter of a percentage point to 6.25, as inflation rose following an increase in global oil prices.

The first interest hike since January 2014 was announced by the Reserve Bank of India which put the retail inflation range between 4.8 percent and 4.9 percent in the first half of 2018-19, and 4.7 percent in the second half.

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The bank raised to 6.25 percent its repo rate, the interest rate it charges on lending to commercial banks.

The increase is expected to hit borrowers as interest rates on home loans, car loans or personal loans are expected to go up. Indian banks usually pass on the burden to the customers.

The bank said crude oil prices have been volatile, causing uncertainty to the inflation outlook. There was a 12 percent increase in the price of Indian crude basket, which was sharper than expected.

On the basis of an overall assessment, the bank said the GDP growth for 2018-19 was estimated at 7.4 percent compared to 6.7 percent in 2017-18.

This increase in growth has been underpinned especially by improved rural demand on the back of a bumper harvest and the government's thrust on rural housing and infrastructure. Also, the forecast of a normal June-September monsoon in India augurs well for the agricultural sector, it said.