MUMBAI: India's central bank raised its key interest rate by half a percentage point Tuesday, its ninth hike in just over a year, warning that persistent inflation has become a threat to growth in Asia's third-largest economy. The bank said the short term lending rate — or repo rate – will go from 6.75 percent to 7.25 percent, with immediate effect. The bank said that from now on it will set only one policy rate, the repo rate, and fix the reverse repo rate — or short-term borrowing rate — at 1 percentage point below the repo rate. Tuesday's rise automatically brings the reverse repo rate to 6.25 percent. “High inflation is inimical to sustained growth as it harms investment by creating uncertainty,” Reserve Bank Gov. D. Subbarao said Tuesday. “Current elevated rates of inflation pose significant risks to future growth.” “The Reserve Bank will continue to persevere with its anti-inflationary stance,” he added. Sixty percent of forecasters had anticipated a quarter point hike, while 40 percent had projected a half point hike, according to a CNBC-TV18 poll Tuesday morning. The bank said it expects economic growth to slow to around 8 percent this fiscal year, from 8.6 percent last fiscal year. It said growth would be between 7.4 and 8.5 percent, if monsoon rains are normal and crude oil prices average $110 a barrel for the year ending March 31, 2012. That is lower than New Delhi's projection of 9 percent growth and dents the ruling Congress party's hopes of using the gains of double-digit growth to alleviate poverty and create jobs for millions of young Indians. Most Indians live on less than $2 a day.
