Repo rate and CRR hike necessary: FinMin

"The objective of the Reserve Bank of India (RBI) is to moderate and manage aggregate demand. The intention is to achieve the objective while ensuring that the prospects for overall economic growth remain positive," the Ministry said in a statement.

The policy stance adopted by the RBI would boost the confidence of both domestic and foreign investors and augur well for economic growth, it added.

The RBI hiked the repo rate, the rate at which banks borrow from RBI, by 50 basis points and the CRR by 50 basis points. These steps are expected to have a salutary effect, the Ministry said.

Crude oil price was at US $134.63 per barrel on June 20 and it rose to US $136.80 per barrel today.

"On the positive side, as Minister of Agriculture has noted, we have very satisfactory stocks of wheat and rice; adequate supplies will be provided to the Public Distribution System (PDS); and stocks will be sold in the open market, when necessary, to restrain prices," the Finance Ministry said.
 
The RBI's statement yesterday pointed out that demand is still high (non-food credit growth was 26.2 per cent as on June 6, 2008).