Finance Minister Pranab Mukherjee on Tuesday hoped that the key policy rate hikes by the Reserve Bank of India (RBI) would have its effect on curbing inflation while conceding that the step would also have some impact on economic growth.

Commenting on the RBI action, Mr. Mukherjee said: “I do hope that [the] decision of RBI to enhance the repo rate and reverse repo rate by 25 basis points would have its impact on inflation. Of course, it would have some impact on growth also.”

While hiking the short-term lending (repo) and automatically the borrowing (reverse repo) rates by 25 basis points each to 8.5 per cent and 7.5 per cent, respectively, in its second quarter policy review, the RBI also scaled down its GDP (gross domestic product) projection for 2011-12 to 7.6 per cent from the earlier forecast of eight per cent in view of the ‘stubbornly' high inflation and consequent economic slowdown in the wake of the grim global environment.

In an official statement later during the day, Mr. Mukherjee said the RBI's monetary policy announcement would “help in getting us back to a more comfortable inflation situation soon while leaving scope for growth to pick up in the second half of current fiscal year.''

Mr. Mukherjee said the RBI Governor had chosen to reinforce his commitment to moderate inflation and check inflationary expectations, in the face of continued stickiness in headline inflation. He pointed out that the rate hike would have implications on credit costs and investment growth.

“We are looking at all options for strengthening investment sentiments in the coming months,” he said.

Having remained above the 9 per cent mark since December, 2010, headline inflation, as per the Wholesale Price Index (WPI), stood at 9.72 per cent in September.

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