As we recapped the Asian week, India decided to add its own flavor of surprise to the market. Late Friday, India's central bank decided unexpectedly to raise interest rates for the first time since July 2008. Their decision was a month before the scheduled policy meeting.
The Reserve Bank of India increased the benchmark reserve repurchase rate to 3.5% by 25 bp from the record low of 3.25%; and increased the repurchase rate by the same amount to 5.0% from 4.75%.
The bank cited inflationary pressures as the driving reason for the decision; where they stated that controlling price-gains has become imperative following the acceleration of inflation to a 16-month high. The surprise decision pushed U.S indices lower and fueled renewed fears over the downside effects of withdrawal on stimulus measures on the global economic recovery.