India raises repo rate to 5.5% in first hike in nearly four years

India's central bank raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, the first increase in nearly four years, citing mounting inflation and strong economic growth. The six-member rate panel voted unanimously in favour of the move, and the monetary policy stance was changed to calibrated tightening from neutral.

Consumer inflation accelerated in August to 4.82% from a year earlier, above the Reserve Bank of India's 4% medium-term target for a third consecutive month. Higher fuel and food prices are now rippling through the economy, with nearly half of the consumer basket seeing inflation above 4%.

Governor Sanjay Malhotra said in his policy address that it was clear the outlook for inflation was no longer benign. Growth remains strong enough to give the central bank room to raise the cost of borrowing for consumers and businesses: GDP growth for the April-June quarter stood at 7.8%, well above the central bank's forecast of 7%.

The decision places India alongside major central banks that have raised rates as higher oil prices fuel inflation, squeeze purchasing power and weigh on currencies. Weak monsoon rains linked to El Niño have compounded price pressures in Asia's third-largest economy.

Nearly 60% of economists polled by Reuters had expected a 25 basis point increase in the repo rate.