RBI raises interest rates, more tightening seen.

The Reserve Bank of India (RBI) raised interest rates more forcefully than expected on Tuesday to fight inflation that is on track to hit double digits for a sixth straight month, setting the stage for more policy tightening.One-year overnight interest rate swap rates jumped after the RBI notched up its fourth rate rise this year and said it was "imperative" to normalise policy in line with the economy's growth and inflation.

A clutch of Asian central banks have started to raise interest rates from the low levels reached during the world wide downturn as the region leads the global recovery.But inflation has risen sharply in India, sparking public protests and raising the heat for the ruling party in parliament, in contrast to several western economies that are worried more about disinflation as their recoveries show signs of faltering.

"The dominant concern that has shaped the monetary policy stance in this review is high inflation," the central bank said, striking its most hawkish tone since the global downturn."With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations," it said.


The RBI lifted the repo rate, at which it lends to banks, by 25 basis points to 5.75 percent, matching forecasts. But it bumped up the reverse repo rate, used to absorb excess cash, by 50 basis points to 4.50 percent -- more than the expected quarter point.Bond yields and swap rates rose, with the 10-year benchmark bond yield gaining 3 basis points to 7.70 percent after reaching 7.72 percent. The 1-year overnight indexed swap rate jumped 19 basis points on the day to 6.1 percent and touched 6.13 percent, its highest since late 2008.