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.
The Reserve Bank of India unexpectedly raised the benchmark repurchase rate Friday to contain price increases that have hit roughly 825 million citizens who earn less than $2 per day. In doing so, Rajan made it more urgent for Singh's government to allow greater foreign investment and reduce food and fuel subsidies to bolster the economy.
"Removing some of the key structural impediments would be the key to revive growth," Siddhartha Sanyal, chief India economist at Barclays Plc in Mumbai, said in an email. "Given that elections are just six to eight months away, you really can't expect to see a lot."