Indian central bank chief Raghuram Rajan’s surprise move to raise the policy interest rate adds pressure on Prime Minister Manmohan Singh to take politically challenging steps to boost economic growth as elections near.
India’s persistently high inflation may prevent an imminent reversal of record interest-rate increases, as a weakening rupee and oil’s rebound reduce the scope for monetary easing, the central bank’s deputy chief said.
India’s rupee jumped after the new central bank governor took steps to boost dollar supply and lawmakers moved closer to allowing foreign investment in pension funds. Stocks surged, while government bonds fell.
India’s government bonds rallied, pushing the 10-year yield down by the most since 2009, after the central bank said it would buy long-dated sovereign notes in a move that eases curbs on the supply of cash.