Red hot India raises interest rates

Did hot India just get a bit cooler?

The Reserve Bank of India on Tuesday boosted its repo rate — or what it charges banks — one-half of one percentage point to 7.25 percent.

That's a more aggressive move than most economists were expecting, though the upward trend is no shocker.

Over the past year, India has raised its repo rate by 4 percentage points as the fast-growing economy struggles with rising inflation.

Things have been particularly bad on the food and energy fronts, though recently the cost of other goods has been going up, too. Last month India's wholesale price index — its most important inflation measure — jumped nine percent.

The takeaway: monetary policy makers are more concerned with controlling inflation than they are about maintaining India's vindaloo-like annual growth target of 9 percent.

“Current elevated rates of inflation pose significant risks to future growth,” central bank governor Duvvuri Subbarao said in a statement. “Bringing them down, therefore, even at the cost of some growth in the short-run, should take precedence.”

India is now forecasting annual growth of 8 percent.

The big concern remains India's hundreds of millions of desperately poor. India has been counting on stellar economic growth — second only to China — to pull these masses out of poverty.

“In the near term, it’s going to be a difficult adjustment for the economy,” Sonal Varma, an economist at Nomura Securities told the New York Times. “That is the sacrifice that the R.B.I. is making.”

Investors in India didn't like the move.

Mumbai's benchmark stock index tumbled 2.4 percent Tuesday.