India Unexpectedly Hikes Interest Rates Because Its Economy Is Growing Too Fast

India Marathon Running

India’s economy continues to grow too fast. The nation’s central bank just hiked its repurchase rate to 6% from 5.75%, which marks the fifth interest hike this year. Only 2 out of 16 economists surveyed by Bloomberg expected such a quarter-point hike.

The worry in India is that the economy is overheating, as industrial production and inflation are soaring.

A similar situation is being faced by China and Brazil, and it stands in stark contrast to the economic environment in developed nations such as the U.S. where policy makers are wishing for more growth.


Economic reports in the past week indicated both a pick-up in growth and moderation in prices. Industrial production expanded 13.8 per cent in July from a year earlier, more than twice the pace in June. India’s merchandise exports increased 22.5 per cent from a year earlier to $16.6 billion in August, Commerce Secretary Rahul Khullar said yesterday.

Still, wholesale prices rose 8.5 per cent in August from a year earlier, easing from July’s 9.8 per cent gain, the commerce ministry said Sept. 14.

Inflation has slowed, but remains high at 8.5%. The higher than expected rate hike is part of an attempt to bring this under control.

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