RBI Steps Don't Point to Firming Rates, PM

Prime Minister Manmohan Singh, on Friday, tried to calm concerns that, this week's measures by the central bank to push the local currency were a prelude to interest-rate increases, saying these were meant to control speculation.

The Reserve Bank of India late on Monday increased by two percentage points to 10.25% the interest it charges banks for borrowing money from an emergency funding facility. Banks can still borrow a combined 750 billion rupees ($12.6 billion) at the RBI's policy interest rate of 7.25% from its main overnight lending facility.

The steps surprised many investors who were demanding the central bank to lower borrowing costs to help support an economy growing at its slowest pace in a decade. It also wiped out hopes that the RBI, which cut its policy rate thrice this year, would reduce it at its rate-setting meeting on July 30.

The rupee has fallen about 10% against the dollar since early May as fears of an early rollback of aggressive monetary stimulus in the U.S. sparked a currency selloff in emerging markets. The Indian currency has been the worst hit among its regional peers owing to the country's large current-account deficit.