Mumbai , Jan 28 (ANI): The Reserve Bank of India (RBI) on Tuesday unexpectedly raised its policy interest rate by 25 basis points to 8 percent. The policy decision was driven by an expectation that consumer price index (CPI) inflation will remain high, an indication that the RBI is looking to adopt a recent proposal to base its policy rate decisions on a CPI target. "Today on the basis of an assessment of the current and evolving macro-economic situation, we have decided to increase the policy repo rate under the liquidity adjustment facility by 25 basis points to eight percent," said RBI Governor Raghuram Rajan . Indian bonds, stocks and the rupee fell after the rate hike but soon recovered most losses. Rajan added that the current account deficit for 2013-14 is likely to be below 2.5 percent of GDP (Gross Domestic Product) as compared to the previous year. "The current account deficit for 2013-14 is now expected to be below 2.5 percent of GDP (Gross Domestic Product) as compared with 4.8 percent in 2012-13. The recent resumption of capital inflows with some turbulence should help finance the current account deficit comfortably," added Rajan. Rajan faces the daunting challenge of reviving an economy growing at a decade low of around 5 percent while battling persistently rising prices, much of which has been fuelled by supply-side shortages beyond the control of monetary policy. (ANI)
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