India raises policy rate by 25 bps to 5.5% amid inflation concerns

MUMBAI, Oct 7 (Reuters) - The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50% on Wednesday, marking the first increase in the policy rate since February 2023, as inflation accelerates beyond the central bank's target level.

India joins other major central banks in raising rates as higher oil prices, triggered by the Iran war, fuel inflation, squeeze purchasing power, and weigh on currencies. Weak monsoon rains linked to El Niño have compounded price pressures in Asia's third-largest economy.

Nearly 60% of economists in a Reuters poll had expected a 25 bps increase in the repo rate.

Consumer inflation accelerated in August to 4.82% from a year earlier, above the Reserve Bank of India's 4% medium-term target for a third consecutive month. Higher prices of fuel and food are now rippling through the economy, with nearly half of the consumer basket seeing inflation above 4%.

At the same time, economic growth remains strong, giving the central bank greater leeway to raise the cost of borrowing for consumers and businesses. GDP growth for the April-June quarter stood at 7.8%, well above the central bank's forecast of 7%.