The Hindu Business Line : RBI move to hike repo rates pre-emptive: Chidambaram

THE FINANCE Minister, Mr P. Chidambaram, on Tuesday termed the Reserve Bank of India's (RBI) move to hike the reverse repo and repo rates as "pre-emptive" action to keep inflation under check and indicated that the rate hikes could be reversed as and when the external situation showed improvement.

"The RBI has hiked the repo and reverse repo rate by 25 basis points. This, I believe, is a pre-emptive action. The RBI wishes to be slightly ahead of the curve. As soon as the external situation stabilises and becomes clear, it could be reversed," Mr Chidambaram told newspersons reacting to the RBI's third-quarter review of the Annual Statement on Monetary Policy for the year 2005-06.

He also underscored the need for the Government and the RBI to keep a watch on what would happen in the US market on January 31 and in March. "After watching the situation during this period, the RBI would take further steps," he said.

The Finance Minister pointed out that the RBI has not changed its bank rate or cash reserve ratio and this was a clear indication that, in the medium to long term, the RBI wishes to keep rates stable (interest rates).

Stating that the Government as well as the RBI had a role in keeping inflation below 5 per cent, Mr Chidambaram said that given the strong credit expansion and growth in consumer demand, "we don't wish to stoke inflationary expectations".

He also said that the RBI has promised to provide adequate liquidity to banks and that the central bank has enough instruments at its disposal for this purpose.

Asked about the government's borrowing programme, he said that the government borrowings depended on the resource position and added that he does not see any change in the government borrowing programme as of now.