Money & Banking

‘RBI has taken ‘right’ step in hiking key policy rates’

PTI New Delhi | Updated on March 17, 2011

The Deputy Chairman of Planning Commission, Mr Montek Singh Ahluwalia. (file photo)

The Planning Commission has said the Reserve Bank of India has taken the “right” step in hiking key policy rates by 25 basis points as inflation is above the comfort level.

“I think it is on long expected lines. I don’t think markets would be surprised by (RBI key rate hike) given that inflation is not in the comfort level, I think it has done the right thing,” the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, told reporters here today.

The central bank has raised its short-term lending and borrowing rates by 25 basis points each in a bid to contain inflation.

About the RBI increasing its March-end inflation forecast to 8 per cent from 7 per cent, Mr Ahluwalia said: “I don’t disagree with the (RBI’s revision of inflation) forecast of 8 per cent inflation by March end.”

He said, “We are hoping that it would go down to 7 per cent level by March end. We have to admit that inflation rate in February is higher than what we wanted it to be.”

The overall inflation increased marginally in February to 8.31 per cent from 8.23 per cent a month ago.

“If the fiscal deficit projections presented in the Budget are maintained and (with) gentle tightening of monetary policy, I assume (that) with a normal production year, inflation during 2011-12 will definitely below 7 per cent,” he said.

Dismissing the contention that the RBI’s monetary tightening would hurt the economic growth, he said: “longer term economic growth rate is a function of many things.

“I don’t agree with the view that in order to keep the long-term interest rate modest (lenders rates), you should keep the short-term interest rate (key policy rates of RBI) low,” he added.

Mr Ahluwalia suggested that it does not make sense to keep the RBI policy rates at low level and let inflation rise, for ensuring cheaper long-term credit from lenders.

Published on March 17, 2011

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