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  • RBI rate hike to check inflation, not hurt growth: FM

    Published on July 27, 2010

    Finance Minister Pranab Mukherjee has said the Reserve Bank’s decision to raise short-term key rates will check inflation without hurting growth.

    “I expect this policy will lead to further easing of inflation which already is going down and it should also keep us fully on track in terms of growth,” Mukherjee told reporters inside Parliament complex on Tuesday.

    In its first quarter monetary review, the central bank on Tuesday raised short-term lending and borrowing rates by 0.25 percent and 0.50 percent respectively.

    The increase in short-term lending rate (repo) to 5.75 percent and short-term borrowing rate (reverse repo) to 4.50 percent will be effective immediately.

    “The monetary policy just announced by RBI is another calibrated step in the right direction … The RBI has not only raised policy rates but has narrowed down the spread between repo and reverse repo rates for a more efficient financial system,” he said.

    This is the fourth policy rate hike by the Reserve Bank so far this year.

    The overall inflation has been in double digits for the past five months and stood at 10.55 percent in June.

    The RBI in order to keep sufficient liquidity in the system has, however, kept the cash reserve ratio (the amount of deposits banks park with RBI) unchanged at 6 percent.

    “It is a welcome measure and particularly I am happy that CRR has not been increased because of successful auction of 3G has created some strain on liquidity,” Mukherjee said.

    The government has raised over Rs one lakh crore from the auction of 3G and BWA spectrum, against the estimates of Rs 35,000 crore.

    “Under these circumstances, not tightening credit by direct quantitative measures like the CRR, shows sophisticated thinking,” he added.