India: Central bank tightens credit policy to fight inflation

The Bombay-based Reserve Bank of India (RBI), which regulates the Indian banking system (Illustrative image).

REUTERS/Vivek Prakash

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To fight against inflation, India's central bank is tightening its credit policy.

It raised this Wednesday, June 8 by 0.50% its key rate to bring it to 4.9%.

A monetary policy conducted by other countries in the world to stop the rise in prices. 

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Faced with the

 which shows no sign of abating and the soaring prices of foodstuffs and energy, the Indian government is strengthening its arsenal against inflation: 7.8% in April.

On the monetary front, the central bank has been very aggressive, raising its key rates twice in one month: 0.40% in early May and 0.50% today. 

A recipe adopted by other emerging countries such as Brazil and South Africa, but also by advanced economies.

This rate hike is also a way for the central bank to stop the depreciation of the local currency, the rupee, against the main currencies. 

Tax reductions

At the same time, the Indian government uses budgetary leverage to relieve households, such as tax cuts to cushion the increase in food and oil prices.

The cost of this program is $26 billion. 

But, despite these measures, inflation will remain high in India and elsewhere in the world, warn economists.

According to the latest OECD economic outlook report, the world will pay a heavy price for Russia's war against Ukraine.

►Also read: “Stagflation”, a real risk for Asian economies according to the IMF

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