India Hikes Interest Rates Thereby Plummeting Asian Rates!

By Author: Sadhana Dhanyal
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The Reserve Bank of India (RBI) on Friday raised its key lending and borrowing rates by 25 basis points. This was done with the intention to combat rising inflation. By doing so, it surprised markets. This hike sparked fears that other central banks in Asia may increase their efforts to fight inflation. This development sent shares lower throughout Asia.

The figures state that Hong Kong lost 437.57 points to 20,933.25, while Sydney fell 42 points to 4,830.2. It must be noted that markets in Japan were closed for a public holiday. Kim Seung-han at HI Investment & Securities in Seoul told Dow Newswires that, India's surprise rate hike may renew concerns about the prospect of an earlier than expected rate increase by China.

Some analysts had expected the RBI to raise the interest rates by somewhere on April 20, at the bank's scheduled policy review. The decision to raise the interest rate has come as a surprise to many. However, the RBI made its point clear for raising the interest rates stating that inflation had been a source of growing concern.

By the end of the current financial year this month, ...
... headline inflation in India rose to a 16-month high of 9.89% last month - far exceeding the central bank's own estimate of 8.5% by the end of the current financial year this month. Not just this. There are also growing concerns that inflation in the country could hit double digits. This is a serious cause of concern for many.

In contrast to the growing concerns, India's finance minister, Pranab Mukherjee has stated that the economy is in good shape and there is not much cause to worry. It is revealed that the economy is recovering faster than expected after expanding at an annual rate of 7.9% in the three months to the end of September, after growing 6.7% in the year to the end of March 2009.

In contrast to this is Greece's economy that is in dire straits. It is expected that the country's economic growth will fall this years by 2%, worse than the Government's forecast of between 1.2% and 1.7%. According to the Bank of Greece (BoG), the Greek economy has fallen into a vicious circle which leaves it with only one way out: the drastic reduction of the deficit and debt.

The report has warned that the euro zone's economic recovery remains fragile. It had depended on fiscal stimulus, which must gradually be reversed as it is resulting in large budget deficits. However, the situation can be improved by granting loans to the debt stricken country.

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