By Geoffrey Smith

Investing.com -- The Reserve Bank of India became the latest major central bank to tighten monetary policy by more than expected, raising its key repo rate by half a point to 4.90% at its regular policy meeting.

The RBI's move follows a similar step by its counterparts in Australia and New Zealand over the last few weeks, and adds to evidence of central banks around the world taking ever more dramatic steps to rein in inflation. The consumer price index in India rose at its fastest in eight years in April, at 7.79%, well above the 6% upper limit of the bank's tolerated range. In his policy statement, Governor Shatikanta Das said it was likely to stay above target for the first three quarters of the year through March 2023.

Das put the RBI's move down largely to the consequences of Russia's invasion of Ukraine, which has caused sharp and sustained rises in prices for food, energy, and other commodities.

"The war has led to globalization of inflation," Das said. "Not surprisingly, central banks are reorienting and recalibrating their monetary policies. Emerging market economies are facing bigger challenges from increased market turbulence, monetary policy shifts in advanced economies and their spillovers."

The Thai and Polish central banks are also holding policy meetings Wednesday. Thailand, as expected, kept its key rate unchanged, but the National Bank of Poland is expected to hike by 75 basis points to 6%. The European Central Bank will hold its regular policy meeting on Thursday, but isn't expected to raise its key rate for another month yet.

Despite the headwinds, the bank still expects the economy to grow at a relatively rapid rate in the coming year. The RBI kept its forecast for growth this year at 7.2%, slowing from over 16% in the current quarter to 6.2%; 4.1%, and 4% in the subsequent quarters. The risks to its outlook are "broadly balanced," it said.

The rupee, which has lost over 4% against the dollar so far this year as the Federal Reserve has moved to a more aggressive tightening of its policy, recovered 0.3% by 2:25 AM ET (0625 GMT) to trade at 77.699.

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