Montek terms RBI's rate hike as aggressive

Describing the Reserve Bank of India's (RBI) decision to raise key rates by 50 basis points (bps) as "aggressive", Planning Commission Deputy Chairman Montek Singh Ahluwalia today said it would help in controlling inflation.

"The (RBI) governor has chosen a little more aggressive stance," he said, pointing out that many people were expecting a hike of 25 bps in key policy rates.

"I don't think this is improper. You do need to send signals and if situation improves, he can reverse the position later. It [the decision] is bound to be effective in controlling inflation," Ahluwalia said.

Asked if the high interest rates will moderate economic expansion, Ahluwalia said that long-term growth was not affected by small variation in rates.

"Some people will worry that impact on interest rates will be too high... It is a matter of balance. If you really want to have good environment for growth you must bring inflation under control. Long-term growth is not affected by small variations in short-term interest rates," he said.

The RBI today raised its short-term lending (repo) and borrowing (reverse repo) rates by 50 bps to 8% and 7%, respectively.

The apex bank has hiked its policy rates 11 times since March 2010, to curb inflation. Wholesale price-based inflation stood at 9.44% in June.