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India central bank increases interest rates

The India central bank has today increased interest rates for the second time in two months as the authorities attempt to balance the battle against inflation against the battle to keep the economy moving forward. This is a very similar situation to the UK government where inflation has started to rear its ugly head and is potentially going to be a problem in the short to medium term.

While the fiscal tightening by the India central bank was less than many experts had predicted, a similar situation is appearing in many other economies around the world. The need to ensure that new money is pumped into the system to help economies grow is being impacted by a rise in the cost of living which is making it more and more difficult for households and businesses to stretch their budgets.

When you also consider the forecast for inflation in India is around 5.5% by the end of March 2011 it is easy to see why fiscal tightening has occurred at this moment in time. However, growth forecasts for the economy are still at around 7.5% for the current fiscal year although they have been downgraded from a recent high of 8.5%.

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