India:  Two days ago, the Reserve Bank of India (RBI) increased its two key policy rates on the back of continued inflationary pressure.  High inflation has developed into a big political dilemma in India.  In fact, the hike surprised the market as the government came up with a 50bp hike in the reverse repo rate to 4.5%, more than the 25bp hike expected by analysts.  This is the fourth time this year that India has raised interest rates (exhibit 1).  Meanwhile, the repo rate was lifted by 25bp to 5.75% with the RBI highlighting the increase in demand-side price pressures.

 

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