RBI's rate move is a step in right direction: Pranab

RBI's rate move is a step in right direction: Pranab

The govt has said the Reserve Bank's steps to raise short-term lending and borrowing rates while refraining from hiking the requirement for mandatory bank deposits will combat inflation without hurting growth.

Finance Minister Pranab Mukherjee lauded RBI for raising short-term lending (repo) rate by 25 basis points to 6 percent and borrowing (reverse repo) rate by 50 basis points to five percent, according to an official statement on Thursday.

The Finance Minister expressed happiness that the RBI has decided not to raise the Cash Reserve Ratio (CRR), the amount banks have to deposit with the central bank, from the existing 6 percent.

According to the statement, the Finance Minister expressed happiness over RBI's mid-quarterly decision, which enables the bank to take small measures without jolting the markets, but at the same time giving a good signal for inflation control and leaving India's remarkable growth story unaltered.

With RBI raising reverse repo by 50 basis points and repo by 25 basis points, the gap between the two policy rates, technically called corridor, has been reduced to one percentage point from earlier 1.25 percentage points.

The Finance Minister said that the narrowing of corridor should contribute towards a more efficient monetary policy.

"This should also encourage a greater absorption of liquidity by the central bank and contribute to further control of inflation," he added.

"I think it (the RBI move) is in the right direction because now the corridor has been narrowed down and still inflationary pressure is there in the system," Mukherjee told reporters in New Delhi on Thursday.

Food inflation, meanwhile, crossed 15 percent during the week ended 4^th September, official data showed on Thursday.

The food price inflation is on a long-run downward trend but still running high, the Finance Minister said. He said the fall in global wheat production is creating some speculative pressure.

"RBIs policy changes should also help us navigate this situation more effectively," he added.

Economy to grow by 8.5 pc this fiscal, 9 pc next yr: Pranab

Finance Minister Pranab Mukherjee on Thursday stuck to his conservative estimate of economic growth at 8.5 per cent this fiscal and said the economy will be on the high expansion path at 9 per cent in 2011-12. 

"The latest figure released by CSO and the latest industrial production figures clearly demonstrate it would not be difficult to achieve 9 per cent growth as being projected in the Budget from the 2011-12 and surely this year, our growth would be not less than 8.5 per cent," Mukherjee said in New Delhi on Thursday.

The Indian economy grew by 8.8 per cent in the first quarter of this fiscal, the fastest growth in around three years.

The Finance Minister added that people think the 8.5 per cent estimate is conservative, given that India's economy achieved 8.8 per cent in the first quarter.

"Indian economy is back on the path of growth," he added.

Industrial growth accelerated to 13.8 per cent in July, after dipping to just a little over 5 per cent in the previous month.