RBI rate hike to check inflation: FM

Finance Minister Pranab Mukherjee today said the decision of the Reserve Bank of India (RBI) to raise short-term key rates would 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 in the Parliament complex.

In its first quarter monetary review, RBI today raised short-term lending and borrowing rates by 0.25 per cent and 0.50 per cent, respectively.

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

“The monetary policy just announced by RBI is another calibrated step in the right direction.... 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 increase by RBI so far this year.

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

However, to keep sufficient liquidity in the system, RBI has kept the cash reserve ratio (the amount banks park with RBI) unchanged at 6 per cent.

“It is a welcome measure and I am particularly happy that CRR has not been increased, because 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, compared to the estimates of Rs 35,000 crore. “Under these circumstances, not tightening credit by direct quantitative measures like CRR, shows sophisticated thinking,” he added.