Rajan Fights India Inflation in Surprise Rate Hike

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Sept. 20 (Bloomberg) -- Bloomberg News’ Harsha Subramaniam reports that India’s central bank Governor Raghuram Rajan raised the benchmark interest rate in his first policy review by a quarter point to 7.5 percent, the first increase since 2011 in a surprise move to stem inflation. He speaks on Bloomberg Television’s “The Pulse.”

In some ways it is not.

You're right.

This is a surprising move at this point in time that the governor of the bank of india has hiked the key rate by 25 basis points.

This comes at a time when you are seeing rising inflation as well.

It is trying to soften the blow by reducing the money market rate by 75 basis points.

This means you will see cost of funds for the financial sector coming down immediately.

This is the context under which the rba has made these measures.

One, slowing gdp growth and rising inflation at 6.1% for food prices.

It surged to 18%. the governor of the bank of india is concerned and says that rising inflation is a matter of concern for me.

It comes at a time when the market is expecting the status quo and no change in rates at all.

This guy is incredibly smart.

He predicted the financial crisis in 2006. he knows how the markets work.

How have markets reacted to this?

You could argue the fed has a bigger impact than he does.

Well, guy, the point is, the markets have reacted very badly to this measure now.

It has been a knee-jerk reaction.

More importantly, some of the banking stocks -- bank o f inf india is down 5%. another bank is down 5%. but most analysts are calling this a knee-jerk reaction.

The devil lies in the details.

By monday, you can see stocks stabilizing.

India's currency which has been hammered over the past three months -- and ben bernanke, when the federal reserve announced it will be continuing its bond buying program, the ralylly that happened have been wiped out in a matter of a couple of hours.

As i said, the devil may be in the details and you might see the markets stabilizing monday morning.

Thank you very much, indeed, for the update.

Out of india on that one.

Let's stay in emerging markets.

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