FM endorses RBI move to increase rate

Finance Minister Pranab Mukherjee on Thursday said sustaining high growth in the medium term requires price stability and RBI’s tight monetary action is aimed at moderating inflation and checking inflationary expectations.

“RBI has sought to maintain an interest rate environment that moderates inflation and checks inflationary expectations. This is on expected lines, as the core inflation hardened to 8.71 per cent in May, in comparison to 7.93 per cent in April 2011,” the finance minister said in a statement here.

Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan said RBI’s moves are warranted since inflation in May turned out to be higher than expected. Inflation rose to 9.06 per cent in May, after it fell below the nine per cent mark to 8.66 per cent in April, for the first time this year.

“RBI has taken a correct decision. The Reserve Bank was not left with any other option but to increase rates. I think so long as inflation remains high, RBI will continue with tight monetary policies,” said Rangarajan, who had served as an RBI Governor. He said food inflation will further come down since monsoon is expected to be normal.

Food inflation came down to 8.96 for the week ended June 4, from 9.01 a week ago. Planning Commission member Saumitra Chaudhuri said monetary tools are required to contain inflation in the short term.

He said macro stability is required to maintaining high growth, and price stability is one of the pillars to achieve the same.