RBI rate hike on expected lines;aimed to curb inflation: Montek

The Plan panel today said RBI's move to hike short term rates by 25 basis points is on the expected lines and is aimed at curbing inflation without hurting growth.

"This adjustment (by RBI) is a good balance between responding to inflationary concerns, which is very important and at the same time not doing anything that would in a serious way disrupt growth," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters here.

The Reserve Bank today hiked its key short-term lending and borrowing rates by 25 basis points each with immediate effect to rein in inflation, a move that could increase banks' commercial lending rates.

Accordingly, the short term lending rate (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

While RBI maintained that managing inflation would remain a challenge, it has pegged FY'11 inflation at 5.5 per cent. The overall inflation for September was 8.62 per cent, much higher than the acceptable level of 5-6 per cent.

Ahluwalia said there would be some downturn in inflation in future. "It would be in a comfortable zone when the WPI data for December would be available in mid January," he said.

So far, this year the RBI has hiked the repo rate by 125 basis points and the reverse repo by 175 bps to tame inflationary pressure, by curbing consumer spending.

However, in its today's policy review it has said that the likelihood of further rate actions in the immediate future is relatively low.

"The RBI action is in line with what many central banks (are) doing in other emerging markets. I see this more as a signal of getting back to normal interest rate regime," Ahluwalia said.